Three Forms of Entrepreneurs: Existential Reality or Hypothetical Paradigm?

Kishore Biyani, Founder CEO of Future Group and considered a pioneer of modern retailing in India with Pantaloon is reported to have said that entrepreneurs are essentially of three types: the creators, the preservers and the destroyers. He said that he was a creator and a destroyer simultaneously. That Biyani has been a fantastic creator of retail format in India is well-known. Established in 1987, his Future Group operates in the Indian retail sector through over 17 million square feet of retail space, serving 300 million customers in 93 cities and 60 rural locations across the country based on products and services supplied by over 30,000 small, medium and large entrepreneurs and manufacturers from across India. Future Group employs 35,000 people directly from every section of our society. The revenues are variously indicated around USD 2 billion annually.

While retail forms the core business activity of Future Group, group subsidiaries are present in leisure and entertainment, brand development, retail real estate development, retail media and logistics. Some of the other businesses include, mobile telephony brand, T24, operated in association with Tata Teleservices, a supply chain and logistics infrastructure company, and a company engaged in providing educational and training services through three Future Innoversity campuses in Ahmedabad, Bangalore and Kolkata. In the financial space, Future Capital and Future Generali companies offer consumer finance and insurance to customers, as well as corporate loans and equity investments to companies engaged in consumer businesses. Where does the concept of Biyani being an entrepreneur of the destroyer type come from?

Possibly, Biyani has in mind the huge debt he had to accumulate in the aggressive attempt to build his retail, finance and services empire. This situation has led to his divestment of stake in Future Capital and parleys to unlock value from the two insurance ventures. Probably, this is also related to an effort by the group to identify core and non-core businesses. This brings us to the broader question as to whether divestments by an entrepreneur are tantamount to destroying of the edifice, or the parts of it, that he or she would have built at great passion. The history of mergers and acquisitions points out, on the contrary, that what appears to be destroying of the edifice ends up creating wealth for the promoters and the broader set of investors and stakeholders. This is notwithstanding the fact that in some cases divestments (and acquisitions) destroy wealth for one or both the parties.

The theory of trinity

The concept of three entrepreneurial types alluded to by Biyani corresponds intriguingly to the Hindu religious concept of the Trinity of Gods who drive the total universal and living system; Brahma, the Creator, Vishnu, the Preserver and Shiva, the Destroyer. While in the Hindu religious mythology, each of the three Gods specific functions in the cosmic system, and rarely do they transgress the respective roles, Biyani seems to indicate that an entrepreneur could be one or more of the three roles rolled into one. While it is great that entrepreneurs are playing God to the growth dependent Indian economy, the concept of entrepreneurs as harbingers of change itself needs to be better appreciated by entrepreneurs and professionals to ensure that each productive activity generates value on a sustainable basis, and never destroys it.

Whether or not there indeed exist three types of entrepreneurs as postulated, entrepreneurs themselves are made up of three unique forces, competence, passion, and gumption. While without doubt, professionals also possess, and are made up of, these three attributes, these attributes are much more specific in respect of entrepreneurs. For example, an entrepreneur’s competence tends to be his or her individual core knowledge that is critical to the establishment of the entrepreneurial enterprise. This is different from a professional’s competence that tends to be multifarious to meet a wide range of business needs, across firms. An entrepreneur’s passion is one of laying out one’s own path to the destination of enterprise creation, often based on an intuitive call, regardless of whether everyone agrees or not. This is different from a professional’s passion that is often system compliant and duty bound. An entrepreneur’s gumption is forever driven by rewards and never detracted by the risks. This is different from a professional’s approach to risk-taking which is highly cautious and consensual.

An entrepreneur who is a creator tends to have an equal mix of competence, passion and gumption. An entrepreneur who is a preserver tends to accord greater emphasis to enterprise management by competence rather than by passion and gumption. An entrepreneur who is a destroyer believes that the limits of competence, passion and gumption have been reached. It may be tempting to hypothesize that an entrepreneur could be in a perpetual creator mold by entrusting preservation of enterprise to professionals, and in the process avoiding becoming a destroyer altogether. Rarely, however, businesses can sustain themselves to perpetuity independent of human, entrepreneurial or professional, errors and oblivious of environmental discontinuities, technological or competitive. An entrepreneur has to reengineer himself periodically to be able to create and preserve more, and even if inevitable, destroy less. If the entrepreneur finds it difficult to transform or play different roles to suit different business contexts, appropriate supplementary measures need to be considered.      

Limits of assumption

While the three Gods, the Creator, the Preserver and the Destroyer are the Almighty Gods, the entrepreneurs who are creators, preservers and destroyers are unfortunately not. They face an environment that variously supports the outcomes of creation, preservation and destroying. Reverting to the case of the Future Group, the genesis of destroying of its own enterprise parts, if the divestment can be so called, lies in its own creation, far beyond what the resources could permit or the investors could appreciate. Unlocking of value in financial sector is taken by the group on the basis that the group should defend its core of retail business in an environment that would see a massive influx of foreign direct investment. The defence could be in terms of further organic growth based on resources generated and/or a partial destruction of even the core by ceding stake to a global retailer. An entrepreneur’s ability or positioning to be a creator, preserver or destroyer could well depend on how the forces of environment shape to support or oppose.

A start-up entrepreneur can almost always be assumptive that he or she would be a creator; for that is all what entrepreneurship is all about. However, an established entrepreneur has to balance the roles of creator and preserver with dexterity so that they do not become destroyers. It is often a matter of choice for the creative entrepreneurs to hand over the reigns of their successful enterprises to preservers to sustain or grow the success. The diversified growth of entrepreneurial groups, be it Tatas or Birlas has been due to the recognition of baton change. In such scenarios, divestment or wind-down of parts of the enterprise tends to be a well considered strategic move, rather than an entrepreneur-dependent or driven action.  

The assumptions on which an entrepreneur can operate are few as a startup enterprise. The startup assumption, driven by an internal core competence and an external opportunity perception, is fairly simple though intense: “I Can”. The number of assumptions that an entrepreneur would need to manage quickly escalates as the enterprise expands, and further as enterprises become a group. The competitive forces increase in numbers and intensity as an enterprise grows in scale.  It would be inappropriate, if not futile, for entrepreneurs to attempt to find out the tipping point when their own combined forces of competence, passion and gumption are overwhelmed by the combined competitive forces of technology, market and regulation. Such tipping point is rarely found out until it is too late to find out. There is a simpler and more enduring strategy for entrepreneurs being in a perpetual mode of creation.

Entrepreneurial freeze

It is now well appreciated that firms, as well as their leaders, need to reinvent themselves periodically to stay contemporary and competitive. Entrepreneurs, by definition, can neither be preservers nor destroyers; they can only be creators. Yet, it is a paradox of business history that entrepreneurs find it increasingly difficult to create new ventures as their ventures become established entities. The reasons are twofold: firstly, entrepreneurs fail to recognize the competitive forces that grow rather exponentially with growth and secondly, entrepreneurs, despite growth of their enterprises, increasingly compete with professionals in the tasks of further growth or consolidation and restructuring. These two tasks are best left to professionals with requisite (not necessarily entrepreneurial level) competence, passion and gumption. Attempts by entrepreneurs to transform themselves into preservers and destroyers would be ill advised. In the competitive business of business, virtually every aspect of organization and every member of organization needs periodical refreshing and retooling. Entrepreneurship is the only aspect of business that has to stay frozen in the context of natural instincts of building startups, and growing them to a particular level, organically.

Posted by Dr CB Rao on January 14, 2013

  

    

 

 

  

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

Infosys Board Rejig: Crowded at the Top?

It is lonely at the top in the corporate world, it is often said. For the founders of Infosys, however, it has been a journey of togetherness ever since the company was founded in 1981. In an era which routinely saw first generation entrepreneurs fall apart, second generation siblings spar and multi generation business families struggle to remain together, it has indeed been remarkable that the core founders of Infosys, led by the iconic N R Narayana Murthy not only stayed together but also transformed Infosys into a USD 6 billion corporation and 100,000 plus people organization in a remarkably short period of time. Whoever has left the founders’s group, be it Ashok Arora at the time of IPO, N S Raghavan for his pursuit of entrepreneurial support initiatives or K Dinesh to make way for new board members, the separations have been for reasons acceptable to all the seven founders.

Despite the several blue chip companies that strode the Indian business scene, Infosys has always been an amazing corporate bell-weather. In many ways, Infosys, founded almost a decade before India’s economic liberalization not only brought India’s software prowess onto the global scene but also symbolized the emergence of a new entrepreneurial and leadership class that won global admiration. The team of Infosys founders led by N R Narayana Murthy consistently shone as a great example of founders’ promise to the corporation and investors getting redeemed beyond expectations. Over time, Narayana Murthy, in particular, came to represent an eclectic fusion of individual intellect, business ethics and corporate governance acquiring in the process the image of an irreplaceable leader. As a result, ever since Murthy announced his decision to retire from Infosys upon attaining the retirement age of 65 years, and preparatory to which event he became the chairman and chief mentor of the company in 1994, speculation has been rife over the future course of Infosys leadership.

A contour of changes; real and apparent

It is not surprising, therefore, that the board level leadership rejig at Infosys announced on April 30, 2011 attracted a tremendous amount of media attention. It is not that leadership changes are new to Infosys. In fact, ever since Murthy became the chairman and chief mentor of Infosys in 1994, the company saw a series of leadership transitions, all of them very orderly and within the founder group. First, it was Nandan Nilankani, who became the CEO and MD in March 2002 following the transition of Narayana Murthy to the executive chairman' role.  Subsequently Murthy became non-executive chairman and chief mentor in August 2006.  It was later the turn of Kris Gopalakrishnan to move into Nandan' shoes in April 2007 as Nandan moved into public service. And now in August 2011, it would be S D Shibbulal's turn to move into Kris' MD and CEO role even as Narayana Murthy moves out to become the Chairman Emeritus, KV Kamath non-executive chairman and Kris, the full time co-chairman. There is as yet no announcement of who will fill in Shibulal's COO role.

The latest leadership level changes at Infosys are remarkable for several reasons. The first and foremost reason is that there is indeed no change; all the core founders continue to be associated in one way or the other, and if at all with certain newly defined roles. The second reason is that for the first time a business icon has been brought into the leadership system from outside the founders’ team. The third is that the changes have sought to directly address the so called ‘founders versus professionals’ debate generated by analysts in the media, and momentarily heightened by the abrupt resignation of T V Mohandas Pai who, as the most successful non-founder leader, became director early but could not wait for the CEO position until the last of the core founders could fulfill that role. The fourth is that the changes could, in fact, be more fundamental in their objectives than apparent at first sight, and could portend a major gear shift in corporate strategy, including major acquisitions or a fundamental transformation in organization, including leadership transitions at all levels.

A balanced media view

Though there have been several hypotheses and analysis in the media and a measure of explanation by the principal leaders themselves, the view taken by The Economic Times seems to be the one which is quite balanced. Commenting on the changes, The Economic Times in its editorial dated May 2, 2011 titled "Changing Slowly: Infosys' new management structure is complex but can still work" stated, "Infosys has now three chairmen, one emeritus, one co-executive and one plain vanilla. This is overkill, at first glance, but still a workable arrangement on closer scrutiny, provided all the three at the top collectively mark out their areas of responsibility and curb wanderlust". The reference is to Narayana Murthy, Kris Gopalakrishnan and K V Kamath, respectively. Commenting on Shibulal's appointment, the editorial said "By appointing SD Shibulal as managing director and chief executive officer, Infosys has continued its tradition of honouring the founders, turn by turn. So far, this has not done the company any harm. This time around, too, it could work, particularly given that the board has also decided to induct three younger leaders by June.

The paper's comments on KV Kamath's appointment appear to seek some prophetic touch. It said "Apart from his other achievements at ICICI,  Kamath's outstanding contribution was effective succession planning. And this could be his lasting contribution at Infosys in the few years he has here before he also retires".  It may be noted that Infosys has extended the retirement age for non-founder directors to 70 years while keeping that of founder-directors unchanged at 65 years.  The paper felt "Narayana Murthy's stamp on Infosys is indelible and given his energy and capacity for statesman-like advocacy, it would be silly for the company not to continue to use him as brand ambassador for as long as possible. Murthy can be trusted to provide the room that his successors need in the company's active management." On Kris, the paper felt that Gopalakrishnan's elevation probably reflected the company's desire to reward an effective leader who saw revenues double over a turbulent four years and take the right strategic calls on stepping up consulting and moving into growth areas like telecom. The paper concluded that while some younger companies showed greater dynamism of late, the shake-up showed that Infosys had the will to evolve and stay at the top of the game.

An internal explanatory perspective

Eager as the media has been, the four key leaders, Murthy, Kamath, Kris and Shibulal have also been open about articulating their points of view on the rejig, individually and collectively. The corporate view is that Murthy is a visionary and a mentor par excellence, who will continue to inspire the corporation for a long, long time; Kamath is a great organization and leadership developer, with strong growth instincts and transformational capabilities; Kris is an innovative thinker with the ability to take the right bets on revenue drivers; and Shibulal is a focused execution person whose mission is to implement the new Infosys vision 3.3. This unique combination of leadership strengths, it is said, would deliver equally unique value to Infosys. All the four leaders are expected to continue the established values of ethical credibility, financial prudence and positive aggression. The corporate view also is that there are still some missing pieces of the leadership puzzle, like bringing a new generation of non-founder leaders to key positions which will be rolled out over the next few months.

From the individual statements of the four key players, however, no key new directions are discernible. Murthy states that having worked hard for 42 years, he would take life a little easier, and even take up a public role if something exciting comes by. Kamath states that he would do just what a non-executive chairman is expected to – good corporate governance, clear strategic articulation and light touch steering of a company that is well on its course. Kris sees himself taking direct interest in client relationships, and people development through Infosys Leadership Institute. Shibulal would like to be a client-centric, execution-focused leader, who would lead by example. No out of the box acquisitions for growth are proposed; only those that could fit in the strategic plan would be evaluated. When the dust settles, therefore, the question would be as to whether the leadership is sub-optimizing itself for continuity or consolidating itself for as yet unknown major transformation?

The Infosys board rejig raises pertinent issues of leadership and corporate development that extend far beyond Infosys. In fact, this blog post is not really on Infosys, nor is it intended to analyze the happenings at Infosys. Further attention on Infosys is perhaps not even necessary as the company is extremely fortunate to have a combination of exceptional leaders at the top. But not every company can do, or needs to do, what Infosys has done. The issues that arise from the Infosys saga that have relevance for several other companies are as follows.

Founders' dilemma

Firstly, the sooner the founders' dilemma is resolved, the better it would be for a founder-driven entrepreneurial company. The resolution need not necessarily be in terms of either founders staying in control or giving up control. As long as the right choice is made keeping merit as the benchmark, either decision would be good. That said, each route has its additional challenges. The route taken by Infosys of founder continuity could lead to sub-optimization when the founders are one too many, and each a capable individual, with the company in addition having a strong professional leadership bench. The question would be whether a company, even of 6 billion dollar scale, would need so many iconic leaders when much larger, multi-industry behemoths like Reliance are ably led by just one great leader.

Clearly, having many great leaders at the board level, many of them founders, is a great asset for any company. If the board, instead of adopting an approach of division of functional responsibilities, adopts an approach of entrusting an entire business vertical to one leader it could transform the company from merely being a scale driven business corporation to a scope driven multi-business conglomerate. In Infosys example, if this approach is taken, one can visualize at least four founders driving four types of IT businesses each (for example, services, products, consulting and BPO) and making Infosys an IT conglomerate. Another method could be for the founders who built a company to a multi-billion dollar level and in the process accumulated multi-million dollar personal wealth to rediscover entrepreneurial roots. If certain smart founders could establish and grow a company to 6 billion dollar scale with an investment of a few thousands of rupees, clearly with a proven track record and the security of personal wealth, each of the founders can be trusted to recreate equivalent or larger corporations.

Integrated leaders

in general, successful leaders tend to be holistic and integrated personalities. While, each leader may have something of an additional core competence, be it in terms of vision, strategy or execution and mentoring, coaching or transforming, a successful leader would be able to work on a set of multiple dimensions. It would be more appropriate for the leader at the apex level to stretch that integrated capability as long as one would wish, rather than divide, albeit consensually, the responsibility matrix with other equally competent leaders. One would believe that the Tata group and Hindustan Unilever are particularly adept at developing integrated leaders who could simultaneously transform and grow their companies.

That said, a deliberate de-emphasis of one's holistic capabilities would have its relevance and appropriateness when the established integrated leader desires to develop potential leaders in waiting. Such a developmental pathway was followed in an exemplary manner as the baton moved from Murthy to Nandan to Kris, and now to Shibulal. The challenge lies in pursuing such a pathway between founders and professionals (as founders seek to retire to grow the professionals) or between professionals and next generation members of founders (as founders seek to bring their family members into leadership positions). The time span to achieve such transition needs to be neither too short nor too long so that the full potential of all the leaders is brought into play at the earliest.

Management of instincts

Leadership of corporations is not only one of skills and competencies but also one of values and ethics. Leadership is also one of managing instincts in a positive and purposive manner. There are again two ways of approaching the management of instincts, given that business is as much of collaboration as of competition. Infosys, for example, has very distinctive methods of integrating ethics and values as part of decision making. For example, the loss of an acquisition candidate to another IT giant in recent times is attributed by the Infosys leadership to certain “un-Infosys’ style negotiation approaches of the target candidate. When the board composition represents a cultural homogeneity, decisions are likely to be careful, conservative and compliant, a real virtue for the tough times as Infosys demonstrated.

That said, homogeneity has its limitations when business environment is competitive yet full of opportunities. Debate and challenge at the apex level is often essential to crystallize new ways of doing business without compromising core values and basic ethics. The current Infosys model of positive aggression in a framework of homogeneity may not be competitive under all circumstances, both internal and external. Any divergence to homogeneity model needs to be well thought out. The turmoil caused by iRace human resources transformation in Infosys has apparently some relevance in this context. A debate on extracting more value vis-a-vis restructuring positions or compensation would have helped in a better management of instincts.

Trauma of benchmarking

The comfort and pride of being a leader often breeds a reluctance to benchmark oneself against competition. This gets ensconced in a false sense of invincibility as the corporation and leadership become darlings of the media, investors and analysts. At least two of the three software bell-weather corporations have taken to such smugness with the leaders extending the lead and the followers shortening the lead. The Infosys act shows that the corporation and leadership had enough sagacity and appropriate timeliness to pull back into an overdrive. The lesson exists for all corporations in leadership positions in an industry to be always alert and keep exploring methods that leverage intrinsic talent to explore new avenues of growth, in the process enabling the corporate leaders self-actualize themselves and build value for the corporation.  

Bench-marking requires not only skills of analysis but also openness of objectivity. Viewing industry boundaries from several angles and in multiple manners is essential to achieve meaningful benchmarking guidance. Ashok Leyland for long prided itself for being in a leadership position in the bus segment and having the second largest position in the truck segment little realizing the strides a more expansive Tata Motors has been taking in a wider range of light, medium and heavy commercial vehicles, multi utility vehicles, sports utility vehicles and passenger cars of all ranges. Again, both Ashok Leyland and Tata Motors missed the point that an entirely new luxury bus segment driven by Volvo was emerging leaving them as marginal players in the new segment. Too narrow an industry focus or single measures of benchmarking lead to needless complacence in leading companies due to a failure to appreciate the changing industry boundaries.  

Lonely amongst a crowd, at the top

Clearly, a corporation is blessed if it is able to groom organically robust leadership talent and also inorganically attract proven external talent. The greater the number of leaders with iconic or near iconic status in a corporation the greater is its potential to grow and reward all the stakeholders. As the Infosys model shows it is entirely possible for a corporation to achieve growth rates better than industry average on the strength of its leadership, and with a good game plan for division of responsibilities as per core or super-core competencies. On the other hand, there also lies a hypothesis, proven elsewhere, that the crowded leadership leverages all of its talent most effectively if it is deployed in a lean manner and utilized on an integrated canvas.

In any corporation, the greater is the leadership potential the greater should be the applicable functional and business canvas. The difference between a great corporation which has a dominant scale and a great conglomerate that has both dominant scale and expansive scope, despite both having the same bench of iconic leadership talent at the top is only one factor; the former knows how to collaboratively deploy its leadership talent even at the risk of sub-optimization to prudently consolidate itself while the later knows how to competitively deploy its leadership talent even at the risk of stretching itself adventurously into new horizons.

Posted by Dr CB Rao on May 7, 2011

Transformational Entrepreneurship: First Success and Beyond

India would be the USD 10,500 billion Real GDP economy by 2035, becoming the third largest in the world in another 25 years, according to projections by Goldman Sachs. This transformation would be powered by high growth rates of around 10 percent over the next few years. Such growth would require something beyond the normal economic activity. Experts who study qualitative transformations would hypothesize that a large burst of entrepreneurism in India would be the factor that would drive the extraordinary economic transformation. Government policies and individual aspirations should therefore focus on better understanding entrepreneurship as a driver so that the future economic potential is realized in full.

Entrepreneurship has several hues. Each has its context, relative to the industry and the entrepreneur. A study of the possible types and typologies of entrepreneurship would help the nation channel its entrepreneurial energies in a positive manner. Choosing the right mix of entrepreneurship would create new industries faster, and reinforce the established industries better. While ideally there is no one best entrepreneurial type, it would make sense to rank order different entrepreneurial types in terms of relative context and potential. Prior to such an exercise, however, we would need to define who is an entrepreneur in terms of certain basic profile. While the basic definition of an entrepreneur remains as someone who creates an enterprise out of gutsy ideas, minimal resources and maximal passion, there are other perspectives too.

Defining the entrepreneur

Besides the above characteristics, an entrepreneur can be viewed from two perspectives. The first is the attribute perspective. An entrepreneur is one who has competencies that are deployed with confidence and are sustained by conviction. This contrasts with the profile of a professional who could have competencies but not have the confidence to deploy them or the conviction to sustain them. A manager or leader, for example, may have access to the competencies of other professionals, and even run the enterprise play more as a call of duty despite having less of confidence and conviction. An entrepreneur, on the other hand, needs core competencies, confidence and conviction as a combination that drives entrepreneurial passion.

The other view of entrepreneur is that he or she is a professional, manager, leader and humanist, all rolled into one. An entrepreneur, like a professional, is always ready to roll up the sleeves and put the shoulder to the wheel. From making own coffee to drawing own designs, nothing is infra dig for an entrepreneur. An entrepreneur is also a manager, but more so a leader. He can inspire confidence by his vision and by walking the talk. The other essential role of an entrepreneur is that of humanist. An entrepreneur needs to have a larger purpose than just making money; he needs to convince his team, especially in the startup period that the mission he has embarked upon is of national or social importance. Only by being a humanist can an entrepreneur integrate a larger purpose into his endeavor.

Entrepreneurial typologies

There are also two basic entrepreneurial typologies, both of which are technology-dependent. In fact, there can be no entrepreneurship without technology. No entrepreneurial venture has ever prospered with only management, and without technology. The first type, then, is based on organic technology; technology that is developed and owned by the entrepreneur. All successful entrepreneurial ventures which became industry making or industry leading companies have been based on unique technologies of their founding entrepreneurs. Clearly, the greater the influx of scientists, engineers and technologists into entrepreneurial mainstream the greater would be the value creation in the economy.

The second type is based on inorganic technology. In this model, a non-technical entrepreneur makes a deal with a technical professional or in-licenses appropriate technologies, nationally or internationally, to overcome the lack of organic technologies. Needless to say, the inorganic technology route is less certain and more expensive than the organic technology route. There are, however, circumstances when combination of organic commercial enterprise and inorganic technical expertise also makes for a winning combination. Possibly, the increasing orientation of non-technical post graduates from premier management institutes towards the entrepreneurial mainstream would help the entrepreneurial movement in the country equally well.

Scoring the initial success

India’s success with entrepreneurial efforts, especially those of first generation enterprise, has been patchy. For one highly successful Orchid Pharma or Gitanjali that made the mark in their respective global markets, or a few other food services ventures that scored successes in the local markets, there have been several others which floundered along the way. A study of such failures indicates lack of a clear strategy and an inadequacy of execution as the two primary reasons. Strategy for an entrepreneurial company must address a clear short term market need that can be fulfilled and monetized. Long term mega strategies would fit ill in a startup entrepreneurial format. By choosing any one of three generic strategies of cost leadership, product differentiation and niche, but certainly not all, the entrepreneur can score the much required initial success. This strategy selection needs to be fortified with execution leadership.

Orchid Pharma, for example, succeeded by focusing on the niche format from the inception; a niche of relative exclusivity in product space, and a clear understanding of the drivers for such exclusivity such as technology, quality, investment, global orientation and people. Once the initial success was posted, the company was able not only to replicate and extend the niche strategy but also experiment with product diversification, with more investible resources and cost leadership becoming available to drive scale. On the other hand, a few other entrepreneurial companies in the pharmaceutical field and BPO space failed to consolidate their early gains because of an attempt to follow a medley of strategies, made worse by indifferent execution, from the beginning. Initial success of entrepreneurship, therefore, needs a carefully calibrated “limited gains – solid foundations” strategy for sustainability.

Beyond the first success

While the first success is in itself a formidable challenge, growing beyond the first success is also an equally tough challenge for the entrepreneur. For the new generation Indian economy, past entrepreneurial success is no indicator for future entrepreneurial path. This is majorly because of the structural changes that are taking place in the Indian economy. The new Indian economy is not merely one of cost leadership, import substitution or export competitiveness. Not many, for example, predicted even a couple of years that there would be a larger number of smart phone introductions than low cost phones each year or that mobile phones would ever be manufactured in India. These and several other high end products offer enormous potential to develop high technology hardware and software for the new generation of techno-commercial entrepreneurs. At the same time, there are areas of the economy which are crying for attention such as genuine micro finance, low income health solutions, universal primary education, nutritious packaged food, multimedia in education and so on which make a perfect canvas for the new breed of techno-savvy social entrepreneurs.

Entrepreneurs now seeking fresh successes beyond the first need not, and should not, repeat or replicate the past models that were operationally relevant in the old Indian economy. Even if necessary, entrepreneurs should be prepared for changing their canvas after the initial success and adopting a different strategic direction. Many successful entrepreneurs baulk at that challenge; strange as it may seem many entrepreneurs are not keen to restart their entrepreneurial base from a zero base, albeit in a different field, after the first success. Several successful entrepreneurs would prefer to build future successes on their first successes. While this is not an incorrect strategy, and is certainly full of economic logic, entrepreneurs also must realize that they would be missing on great opportunities due to their diffidence to reinvent themselves.

Dilemmas of entrepreneurship

Transformational entrepreneurship is easier aspired for than actually achieved. Entrepreneurs typically face dilemmas on paths to follow after the first success, each with its pros and cons. There are at least four ways the paths can be deciphered. Entrepreneurs can be stay-on or move-on entrepreneurs; they can be deep divers or wave surfers. In their approaches they can be either scalar or vector. They can be serial entrepreneurs or stable entrepreneurs. They can be industry specialists or conglomerate seekers. The unique and distinctive entrepreneurs in the entrepreneurial class would have a mix of all these approaches. Transformational entrepreneurship indeed requires much more creativity, effort, diligence and effort than the first entrepreneurial venture.

Stay-on entrepreneurs stay committed to being entrepreneurial in thinking all through their life. Move-on entrepreneurs see being entrepreneurial merely as a transitory phase in life. While initial or subsequent failures could make some entrepreneurs move-on entrepreneurs, whether being a stay-on or move-on entrepreneur has to do more with the combination of competencies, confidence, conviction and passion that one possesses as alluded to earlier. Typically, stay-on entrepreneurs tend to be not only more tenacious in their entrepreneurial mission and more successful in their first ventures but also have an enabling family environment that has greater sustainability in the face of entrepreneurial risks.

Deep-dive entrepreneurs are those who challenge the classic limits on industry definition. An entrepreneur manufacturing alternators, for example, would not see the product as only one entrepreneurial opportunity, rather he would see each sub-component, be it shell, the wiring, the contact points, or the electronics of the alternator, as an entrepreneurial opportunity providing value enhancing scope for business expansion. Typically, such entrepreneurs utilize points of inflection in product and process technologies to deepen their understanding of new entrepreneurial opportunities. The wave-surf entrepreneurs, on the other hand, adopt a different approach of broader coverage. The manufacturer of alternators, for example, would move on to other electrical and electronics systems, and would avoid deeper integration into any one product.

Scalar entrepreneurs are typically scale driven. Vector entrepreneurs are conscious of the direction they take as well as the scale they reach. Scalar entrepreneurs tend to take on any opportunity as long as it provides scale; emphasis tends to be on magnitude rather than on a cohesive thread of strategy. The approach of Sahara group to take on anything from airlines and media houses to townships and consumer products on a grand scale is an example. In one way, scalar entrepreneurs tend to develop conglomerates randomly, with high risk, associated also with a need to exit some. Vector entrepreneurs are clear that scale needs to be sensible from the point of view of product, process or customer. Sahara group’s exit from airlines business and Jet group’s acquisition of Sahara Airlines brings out the scalar-vector differentiation clearly.

Serial entrepreneurs are classic wealth creators, usually for themselves, with no emotional attachment to their ventures or domains. A typically modern Western phenomenon, serial entrepreneurship has started influencing the Indian entrepreneurial psyche too. True serial entrepreneurship is based on the premise that a venture that has been successful up to a particular level in the hands of an entrepreneur would be more competent in the hands of a larger player who can take it to full potential. Serial entrepreneurship which is based on opportunistic exit as in the case of Ranbaxy in India shakes the investor and employee confidence in the long term sustainability of vector entrepreneurship in an emerging economy. Stable entrepreneurs, on the other hand, tend to be vector entrepreneurs driving logical integration or related diversification through measured steps.

Domain entrepreneurs are the most common breed of entrepreneurs. They stand specialized in their chosen or starting field and build scale and scope in that field despite the several other domains that may emerge from time to time. The growth of such enterprises therefore tends to be economy or market linked. The domain entrepreneurs need to be technologically savvy to survive and grow. Conglomerate entrepreneurs, on the other hand, pursue a deliberate strategy of entry into each domain that opens up with the times and growth of economy. In the past, conglomerate entrepreneurs tended to move into all the licensed domains as they came to be opened up, and thus register success after success. With only a few domains remaining to be opened up, today’s conglomerate entrepreneurs would need to possess better capabilities to read technological and market signs.

‘Mix and grow’ entrepreneurship

Given that entrepreneurship is in itself an artful science of coping with uncertainty, it would be inappropriate to postulate that any particular model or combination of models would drive India’s economic transformation. Clearly, however, no single model of entrepreneurship helps entrepreneurs post sustained successes beyond the first success. The most successful model could be to become a vector entrepreneur in a chosen field, and build scale and scope with the help of entrepreneurially oriented professional managers. The entrepreneurs should then ideally move on to new fields of diversification, replicating in each field the vector entrepreneurial strategy. This is the model successfully established by India’s major entrepreneurial groups such as Tata, Birla, Murugappa and Ambani groups. In contrast, entrepreneurs such as Bajaj chose to stay focused as domain specific vector entrepreneurs. The mix of domain-vector and conglomerate entrepreneurial strategies, however, provides the maximum potential for larger market presence, faster growth and more dominant contribution to the larger society.

The ability of an entrepreneur to adopt the vector-conglomerate model clearly depends on the entrepreneurialism that he is able to develop in his professional team. Vertical integration in the vector entrepreneurial phase and related or unrelated diversification in the conglomerate entrepreneurial phase are proportionate to the entrepreneurial energy of professionals. Each Tata group company, for example, has had at least five to ten senior leaders with demonstrated capability and track record in taking entrepreneurial decisions for new products and new facilities or acquisitions. The stay-on entrepreneur should, as part of the first success, develop his leaders as professional entrepreneurs with the space to take decisions on new businesses. Similarly, success in the conglomerate phase would depend on the ability to co-opt proven entrepreneurial leaders. Reliance groups’ successes in conglomerate diversification in new fields such as petro-chemicals, oil refining, oil and gas exploration, telecom services, power sector, infrastructure, media, financial services and retail space are as much due to the Ambani brothers’ reinventing their entrepreneurial energies as due to their successes in getting the right kind of entrepreneurial leaders. More Indian entrepreneurs need to take note of these successful approaches to help India become the third largest economic power by 2035 as forecast.

Posted by Dr CB Rao on March 13, 2011