National Entrepreneurial Culture: Systemic and Mindset Factors

Widespread industrial and economic development of a nation is triggered by entrepreneurial initiatives in the country. India which is recognized today globally for its educated and hard working human resource base needs to focus its sights on harnessing entrepreneurial spirit for enhanced economic and social development. This paper discusses several approaches to ignite the entrepreneurial spirit with widespread positive impact for India.

Entrepreneurship defined

An entrepreneur is someone who starts his or her own business, especially when such activity involves risks. The risks relate primarily to market acceptance of business proposition, arrangement of requisite capital, creation of organization and uncertainty of financial returns. An entrepreneur mitigates the risks by developing a unique proposition for his venture in terms of product or service innovation and / or cost arbitrage relative to a larger organization. The combination of innovativeness and competitiveness that is implicit in an entrepreneurial activity acts as the key trigger for broader industrial and economic development.

A study of industrial history points out that each and every global corporation has had its roots in entrepreneurial activity; from Henry Ford’s Ford Motor to Akio Morita’s Sony. That said, it has also been a natural phenomenon for established business houses to start their own entrepreneurial initiatives through diversification projects. While such initiatives lack the main ingredient of a typical entrepreneurial activity viz., personal risk-taking of a promoter, such growth initiatives do involve risks on other multiple dimensions, and contribute in an equal measure to accelerated industrial and economic development.

Entrepreneurship in curriculum

The Indian education and social system is typically geared towards secured jobs, particularly in large organizations. Educational streams are pursued based on potential employment opportunities, regardless of the aptitude and flair of the students. Very few, if at all, of the students are tuned towards starting their own business enterprises. It is important therefore that Indian curriculum from the early schooling days incorporates entrepreneurship as a core subject of curriculum. History has instances of brilliant inventors, whether Alexander Fleming who discovered Penicillin or Graham Bell who discovered telephone, laying foundations of great business empires. The Indian educational system needs creative economic historians who can interpret the history of industrial innovations and business creativity across generations, and identify core entrepreneurial initiatives that transformed business and economy over time.

As a student progresses from a school to a college and later to a professional institution and a university, it becomes appropriate to inculcate the entrepreneurial approach through specific projects. The project work that needs to be undertaken by a student in a real life or in a business setting in partial fulfillment of the graduate or post-graduate study requirements provides an important avenue for entrepreneurial development. Unfortunately, this system has been reduced over time to a grudgingly tolerated formality by both the academic institutions and business undertakings. There is a clear need to revitalize and redefine the system of project work to fulfill a larger entrepreneurial purpose that it can truly deliver.

A reputed business school in India has recently initiated a process by which some of its students could work with industry icons as their understudies. This practice, the school felt, could enable them gain valuable insights into leadership styles. What is perhaps even more urgently required is a system by which graduate and post-graduate students are encouraged to work on establishing pilot scale industrial or business projects based on co-guidance from the academic institutions and business enterprises.

Teams of people from technical and managerial disciplines from within an institution as well as from different technical and business management institutions (say, from IITs and IIMs, to start with) can combine to undertake such projects. This methodology would, of course, require a sea change in how the institutions approach the project work as part of their academic curriculum and how they would provide credits to individual and group work. A revitalized academic industrial initiative of entrepreneurial projects would prepare the students exceedingly well on the entrepreneurial journey.

Entrepreneurship at work

Much has been written about how an executive, manager or leader in an established undertaking also could be entrepreneurial at work. It is possible and desirable for one to be an entrepreneur at work notwithstanding the fact that one is bound by structure, systems and processes in taking decisions and executing them. Being an entrepreneur does not mean being all alone, taking all decisions individually or taking risks all upon oneself. Even an entrepreneur would need to create a vision, strategy, structure and process with a team and raise finances through articulation of the concept to the potential stakeholders. The challenge for an executive at work to undertake new developments, construct new projects, introduce new products or foray into new markets is no different. The challenge even for a corporate executive is one of identifying a new domain based on one’s own experience, expertise, risk-taking ability and communication skills. Entrepreneurial executives can help companies expand and diversify their businesses, reaching higher career heights in the process.

Entrepreneurship at work does, however, require an appropriate organizational eco-system. Entrepreneurially vibrant organizations, in fact, are distinctly differentiated from bureaucratically pedestrian organizations. Leaders and managers in entrepreneurial organizations tend to encourage scientists, technologists and other professionals take risks in setting up new projects or venturing into new domains. There exists palpable latitude in such organizations towards forgiving genuine mistakes or accepting unanticipated outcomes. This objectivity nurtures the ability of people to undertake risky but potentially rewarding projects. Such organizations balance the rigidity of structure and process with the flexibility of innovation and creativity. This requires an organizational culture in which the entire leadership team is committed and aligned towards being entrepreneurial at work. Usually, such total entrepreneurial alignment within the top leadership is not possible given the multiple backgrounds from which various leaders come from. As an alternative, organizations could create entrepreneurship councils as a formal means to encourage executives, managers and leaders take entrepreneurial decisions, as distinct from those related to regular operations and normal business continuity projects.

Entrepreneurship at the helm

One would imagine that having an entrepreneur at the helm is one of the best ways to promote the continued entrepreneurial growth of the corporation that he helped to conceptualize and grow. One may even conclude that an organization which has an entrepreneur-founder at the helm as the Chief Executive Officer (CEO) would be the most entrepreneurial, always exploring new avenues. Unfortunately, however, several entrepreneurial organizations as they grow larger tend to become deliberative, if not bureaucratic. They tend to take strategic decisions (for example, integration, diversification, divestiture and acquisition) in a structured manner within the defined industry boundary. The entrepreneur who is also the CEO in such organizations gets bound by accountability to his shareholders and investors and finds it difficult to take apparently radical business and investment decisions, especially if they are unrelated to the current business, in an entrepreneurial manner. Getting stuck as an entrepreneur at the helm of a corporation is possibly not the best way to replicate, in broader domains and with greater resources, what the same entrepreneur could achieve in a much narrower domain and with a much smaller resource base.

The logical solution for the entrepreneurial plateau in decision making seems to lie in each entrepreneur making a decision on continuing to be an entrepreneurial leader vis-à-vis a professional leader. Whether to head and manage his corporation or remain a mere investor turning over the reins of his corporation to a full-fledged professional is a healthy dilemma which every entrepreneur must face from time to time. Remaining as an entrepreneur, choosing to move away from day to day management, would help the entrepreneur to refocus his energies and resources on newer entrepreneurial ventures. The business models, investor regulations and economic system that dominate the Indian business system are unfortunately not conducive to entrepreneurs to establishing newer ventures. In addition, the Indian entrepreneur tends to get emotionally and physically attached to the company he created, often failing to see the larger role he could play in national wealth building. The American culture, on the other hand, is one of entrepreneurs creating value, monetizing it and moving on with new business lives. The American entrepreneurial culture has clearly led to a continuous creation of newer and more challenging businesses of greater value in the US economy. This is perhaps a more appropriate model if India has to utilize effectively its scarce entrepreneurial talent. A true entrepreneur would need to be a serial entrepreneur rather than a static entrepreneur in this model.

Entrepreneurship as CSR

To provide a sustainable fillip to the entrepreneurial movement in the country, corporations need to take up development of entrepreneurs as a corporate social responsibility (CSR). Apart from encouraging induction of entrepreneurially trained graduates and post-graduates into companies, and enabling entrepreneurship at work, corporations need to take up molding of entrepreneurs as a core social responsibility. This could occur in two ways, both of which are mutually supportive to each other. In the first method, each corporation vows to develop at least a few entrepreneurs out of its workforce or from the general public by outsourcing some of the tasks which it has been doing by itself. For example, a company which has been doing all its equipment maintenance itself may choose to let its maintenance chief form an entrepreneurial venture that maintains facilities and outsource the activity to him. There are similarly several possibilities for large companies to outsource their broader supply chain management activities (including materials planning, procurement and logistics activities) or corporate services activities (including recruitment, accounting, audit, customer relationship management) to entrepreneurial ventures led by their own executives. While such activities may run the risk of breeding collusive cronyism, true entrepreneurial spirit should see such ventures break free of their sponsors and growing on their own sooner than later.

The second way of corporate entrepreneurial responsibility is to reach out to the wider society and enable members of the society to set up their own enterprises. Corporations adopting their neighborhoods can help the citizens set up a slew of social and economic ventures based on their capabilities. From simple social activities like tailoring and retailing to more involved infrastructure activities like education and business, corporations can, through their corporate social responsibility arms, contribute to an indigent society evolving itself into an entrepreneurial society. As industrial firms seek to expand aggressively through new industrial campuses and economic zones, the need to support the society with more sustainable means than one-time cash remuneration for the acquired land is self-evident. Typically, companies undertake varied corporate social responsibility activities only. Upon securing of their business models and operations as is evident by the contributions made in this sphere by established companies. However, by integrating corporate entrepreneurial responsibility as part of their entry strategy in new green field projects the companies can seek synergy between industrial development and social equity.

Summary

With over ten million graduates, post-graduates and research scholars graduating annually from colleges, institutions and universities of higher education in India, the potential to develop and unleash the entrepreneurial energy of the vast educated work force is immense. Even if a small percentage of the educated human resource base opts to establish its own entrepreneurial ventures, the employment and development triggers for the Indian economy would be immense. This, however, requires significant systemic and mindset changes. From ingraining self-reliance and entrepreneurship as an early family and educational ethic to the development of an industrial and economic system that encourages entrepreneurship both at work and outside work a host of systemic and cultural changes are required to achieve the full potential of a highly literate and highly entrepreneurial educated India.


Posted by Dr CB Rao on January 11, 2010

The Challenge of Leadership Development: From Disablement to Enablement

Leadership is not merely about creating vision, strategy and action plans but more specifically about translating them into tangible corporate accomplishments. Much has been written about what constitutes the right leadership competency for an organization. Despite companies having leaders who fulfill broad parameters of leadership capabilities the collective competency is rarely translated to corporate performance to the fullest extent. This article discusses the parameters of leadership processes that sub-optimize leadership delivery in most corporations and lays out certain methodologies to enable top-notch leadership performance.

Leaders and leadership

The author in his blogpost “The Cubic Model of Leadership” (Strategy Musings:April 20, 2009) outlined a three dimensional model of leadership which focuses on results, processes and competencies as the three primary dimensions on which leadership gets identified. There being no single universal metric of leadership, the post also discussed three sub-dimensions on each of the primary dimensions. Revenue driving, profit driving and value driving on the dimension of results, envisioning, strategizing and execution on the dimension of processes, and mentorship, communication and networking on the dimension of competencies exemplify leadership variances. The post also highlighted how three iconic leaders, Jack Welch, Bill Gates and Carlos Ghosn, each highly successful in different backgrounds, represented unique combinations of the multiple leadership dimensions.

General Electric continued to post continued stability and growth even after Jack Welch retired. Microsoft revitalized itself even though Bill Gates moved into a passive oversight role. Renault-Nissan continues to be steered exceptionally well under the most trying market conditions for automobiles globally. Leadership in such companies is an institutionalized phenomenon rather than a uniquely personal identity. This lesson is evident from a review of several other well run companies internationally and in India. For example, Toyota, Pepsico, Kellog, Apple and McKinsey internationally and Hindustan Unilever, Tata Steel, Tata Motors, Infosys and L&T in India illustrate how such corporations prospered through successive leadership transitions. Clearly, the ability of a leader to nurture several potential leaders is the primary enabler for companies to benefit from total leadership potential. 

Business canvas and leader count

Leadership occurs at functional, business or corporate level depending on the scale and scope of the corporation. It is almost axiomatic that the linear growth or diversification of a corporation tends to be a function of the number of leaders in the corporation. Leaders typically seek excellence and recognition by developing their functions, businesses and the companies they head to ever higher levels. Many management experts therefore recommend organizing a company in terms of clear and focused functions or businesses so that leaders can own them and drive their performance. The organizations that are listed above for continued performance excellence across several generations of leaders have benefited from such structural and strategic clarity.

That said, it is difficult to a priori determine the optimal number of leaders for a company. In an integrated, functionally organized company true leaders who can optimally head a company tend to be few. This is because leaders in a functionally organized company are often not provided the requisite business exposure. An integrated company which is organized under a strategic business unit concept has better potential to develop potential leaders. On the other hand a corporation that is a diversified conglomerate is naturally better disposed to throw up a larger number of leaders with overall corporate potential. Clearly, this is a Catch 22 situation with business growth requiring leaders and leadership development requiring business canvas.

Leadership and corporate context

When companies benefit from broader economic growth rather than competitive positioning leaders fail to see the need for robust leadership teams that can manage economic vicissitudes. Smug with economic prosperity, such organizations and leaders alike often fail to look beyond the current leadership challenges. Boards, internal organizational experts and potential leaders often fail to address squarely the issue of leadership development, let alone succession. This problem is more pronounced in functional organizations and is relatively infrequent in diversified conglomerates. It requires leaders to be as visionary about their own successors as they tend to be about the businesses they seek to grow. A review of worst-performing US corporations such as AIG, Fannie Mae, Freddie Mac, General Motors, Citigroup, Merrill Lynch, ConocoPhillips, Ford Motor, Time Warner and CBS does reveal that a fatal combination of strategic misdirection, operational failure and leadership vacuum contributed to the horrific performance of such corporations in recent times.

On the other hand, the most admired corporations such as Apple, Berckshire, Toyota, Google, Johnson & Johnson, Proctor & Gamble, FedEX , General Electric, Microsoft and Wal-Mart reflect an ability to handle economic vicissitudes through leadership depth. It is instructive that these corporations are essentially driven by innovation, competitiveness and globalization which require, as well as provide, perfect opportunity for leadership development. These corporations typically put forth leadership talent ahead of business development and thus institutionalized a virtuous cycle of corporate growth and leadership development. In this process, diversified companies, for example General Electric, had an even better edge with structured business evaluation processes and leadership development institutions. On the other hand, integrated companies, for example Microsoft, had to rely on external talent to an extent to top up leadership talent to handle the impact of the Internet and Cloud Computing.

Ageing and leadership development 

Clearly, there is no substitute prescription for leadership development. The process of leadership development, in fact, needs to be as assiduously instituted in integrated corporations as it is naturally experienced in diversified conglomerates. This requires the leader to look beyond him or her to power future growth. Leadership perpetuation, often built on the past or present successes of the leaders, is a fallacious concept and constitutes a disabling threat to sustainable growth of a corporation. Progressive companies such as Tata Group in India have tackled this problem by establishing transparent and objective criteria for leadership succession. The policy requires that all executive directors retire by 65 years of age and non-executive directors by 75 years of age. Typically, executive directors move into non-executive director positions for the same company or for other companies within the group after the prescribed age. Companies such as Infosys have followed a policy of creating leadership vacuum by design to transit other highly capable leaders move into apex leadership positions.

While it is ideal to have structured retirement policies as in the case of Tata group or Infosys it is not always possible for companies to be time-titrated in leadership development. Voluntary and proactive efforts of the apex leaders and the boards should be channeled to develop a talent pool which not only drives the business but also exerts pressure to identify appropriate channels to utilize the leadership energy. Leadership development has fuelled the growth of several companies into new geographies and product lines. Monolithic companies have established structures such as leadership councils, management committees and executive boards to provide exposure to, and experience in, strategic business management to functional leaders. Some companies have also encouraged functional leaders to become entrepreneurs by letting them establish ancillary companies. Whatever the policies adopted, proactive development and timely utilization of leadership talent has differentiated the firms that have grown more aggressively than others even in single industry situations. 

Courting young and counting right

The process of leadership development starts with catching potential leaders young. Many blue chip companies in India have over the decades institutionalized the process of inducting graduate, post-graduate and management trainees through campus requirements. More progressive companies within the blue chip group have, in addition, established in-house leadership training institutes to hone the leadership skills of potential leaders. These measures, coupled with processes of job rotation and entrustment of challenging assignments, have led to an appropriate recognition for leadership talent. Promising officers of several reputed public and private sector undertakings in India have started as such trainees and moved into chief executive positions in their companies or other companies. For example, AM Naik of L&T, S Ramadorai and N Chandrasekaran of TCS, SK Roongta of SAIL and 01 B Muthuraman of Tata Steel all joined their respective companies as engineers and rose to CEO positions. It may be hypothesized, at least in the Indian context, that such structured recruitment procedures could serve as an enabler for high quality leadership development even as their absence could act as a major disabler.

Having the right count of the potential leaders is yet another challenge of leadership development. Like the macro organization, leadership hierarchy is reflective of a pyramid that is broad at the base and sharp at the top. The progress across levels in competitive organizations happens in a deliberate manner, surmounting challenges, demonstrating performance and benefiting from well-planned selective leadership initiatives. Infosys, India’s leading IT corporation, has created a compelling norm in this process. For one CEO, the company has at any time four full time directors who are completely capable of becoming CEOs and four hundred potential leaders across the company, covering various hierarchy levels. The “1-4-400” principle, covering a multi-geographic, multi-service global corporation is certainly a trendsetter for corporations seeking orderly leadership development. The ability of companies such as Hindustan Unilever, Infosys and Tata Steel to retain equals at the top in anticipation of, and despite, leadership selection is a unique attribute that deserves to be imbibed by aspiring blue chip corporations. 

Differentiating while integrating  

Leadership is all about achievement and differentiation. Business or functional leaders in competitively positioned corporations often exert to demonstrate superior performance. While functional performance is rather easily judged performance of business units is harder to judge. The lead times involved in successful commercialization of novel technologies, for example, makes it difficult to differentiate the performance of sunrise sectors vis-à-vis mature segments. The judgments could, in fact, move either ways depending on the biases that evaluators bring. Adding to the complexity are aspects like interdependencies of functions or businesses, and the expedient business practices that could spur or depress performance in certain markets. For example, it is hard to complain against a business leader if the performance of his business is constrained by the inability of corporate human resources department to recruit the right talent. Similarly, it is inappropriate to praise a business that has been built around ingratiation to opinion makers.

It therefore emerges that while differentiation is important it is also critical to assess performance independent of factors that unnaturally spike or depress performance. In this context, integration of a value-driven ethical platform in the conceptualization and operation of business models assumes importance. Progressive companies lay significant emphasis on ethical business practices as a cornerstone of doing business. Progressive companies also believe in constituting leadership councils and bringing issues of business performance into open discussion. Integration of distinct functions or businesses with transparent policies and objective metrics helps proper assessment of differentiated performance. Groups like Tatas, Proctor & Gamble and Unilever have established global business metrics, including robust financial oversight, to ensure value based performance. Irrespective of scale and scope, companies should institutionalize value-filtered performance management systems from the very inception.   

Decision Rights with outcome responsibilities

Leadership is often exemplified and enabled by the clarity, intensity and correctness of decision making. Clearly, a true leader should have the ability to seek and utilize decision making space. Many companies and even leaders fail to appreciate the need for genuine decision making space. Some companies attempt to address the problem through a rigorous budgeting process whereby businesses are allocated budgets as per potential. That is, however, only a partial solution. The real pathway for establishing and enabling leadership potential lies in defining clearly the decision rights of a leader. A business leader should have clarity about the extent to which he can use the levers of operational and business management. A leader who has aggressive business enhancement goals should, for example, be free to take material sourcing, product licensing and inorganic growth decisions to be able to jumpstart the growth. Decision rights are a synergistic combination of strategic paths and budget allocations placed at the disposal of a business leader.

Decision rights, however, have to coexist with outcome responsibilities. A business or functional leader who earns his degrees of freedom through well defined decision rights must also assume responsibility for the outcomes of his decisions. In talent-scarce economies it is not uncommon to see aspirant leaders who assume positions seeking decision rights, making random decisions and exiting for other positions when decisions go awry. Responsible leaders, on the other hand, make balanced decisions and in addition subject themselves to objective evaluation of outcomes. Leaders who make ambitious decisions of divestitures, mergers and acquisitions, in particular, must last long enough in corporations to either make a success of their decisions or bear the cross for their faulty decisions, or ineffective execution. Leadership longevity is an essential prerequisite for responsible leadership.

In summary, successful leadership development is an institutional process which places high responsibility on the leaders as well as aspirants. It is contextual as well as contributory to the business canvas. Poorly led corporations tend to be careless about the process deficiencies that disable leadership development through perpetuation of faulty leadership. Well-led corporations, on the other hand, tend to be respectful about the six critical factors of positive leadership development viz., capturing leadership talent at young age and preparing requisite aspirants early on, differentiating based on performance while integrating based on value systems, and enabling leadership through decision rights while holding it accountable with outcome responsibilities. 

Posted by Dr CB Rao on January 8, 2010

Incredible India, From 2010 to 2020: The Vision of a Welfare State

Prologue


As India bids good bye to the first decade of the twenty first century it does so with a new confidence and commitment, looking forward to an even more eventful second decade. During the decade that went by Indian software engineers helped the world handle the Y2K bug seamlessly and smoothly, India surprised the world by becoming a space power on its own, Indian corporations acquired some of the most expensive global marquees, from steel to automobiles, and India as a country caught the fancy of global investors as the emerging economic powerhouse. For those whose lives are intimately woven with India, however, only a few small steps have been taken, and giant strides remain to be taken.

There are several potholes in India’s journey towards sustainable progress. Individual prosperity needs to be channeled for public good. Economic growth needs to be combined with social equity. Urban might need to be balanced with rural delight. Industrial development needs to be powered by innovative spark. India’s global dominance in pharmaceuticals needs to be reflected in healthcare for all in the country. Universal education needs to be sharpened with leading edge competencies. Public services have to be truly utilitarian fulfilling the needs of the teeming millions. Corporations need to hold economic wealth as trustees for the society. The list of the heights yet to be conquered in India’s quest for progress is endless.

It is easy to be despondent that the images of Incredible India are as yet not so credible. India has, however, demonstrated in patches that it can be world class when it plans with diligence and executes with commitment. India has the world’s largest number of US FDA approved pharmaceutical plants. With the largest count of drug master files and abbreviated new drug applications, India has become global generic pharmaceuticals powerhouse. India has become the home to the world’s cheapest 4-seater small car that was indigenously designed and manufactured. Indian information technology firms have continued to dominate the global software industry. The question, however, remains as to why progress in India has to be so tardy and patchy.

Mahatma Gandhi, the Father of the Nation envisaged that India would be a country where the downtrodden would be genuinely cared for. Successive governments since the independence have sought to alleviate poverty by focusing on economic growth, building dams and establishing industries. As a result, India achieved a measure of self-reliance although introverted socialistic dogmas substantially sub-optimized growth. Having achieved a notable level of industrialization the time has now come to shape India as a truly Welfare State. This article advocates a bold paradigm that targets social security, connectivity, energy assurance and innovative agro-industrial development as a strategy to build India into an ideal Welfare State.

Billion homes

Security of shelter, food, education and healthcare are the four pillars of social infrastructure, on which a true welfare state can emerge. Several of India’s problems, both from civility and sanitation purposes, can be traced to widespread homelessness across the country, which is an occurrence without any urban-rural divide. The Governments, Central and State, must target building of a billion homes by 2020 to be able to provide the security of shelter to the billion population which could increase by around 25% by 2020. While a proportion of the billion homes, say around 20%, could be left to a totally private initiative to meet the needs of the middle and upper income groups, around 50% could be in a mix of public-private partnership to build affordable, homes on ‘pay to own’ concept while another 30% would need to be entirely in public ownership to meet the needs of the downtrodden who cannot pay to own any home. The public participation could be in terms of the land that the governments would lease or transfer to the home building corporations and eventually to the owners.

A massive home construction initiative such as the ‘billion homes’ program would not only protect the massive population from the ravages of nature but also provide an influential pan-Indian trigger for employment generation. In a creative manner, the homeless and the jobless themselves can be involved in the construction activity providing them with a steady income even as they participate in the building of their homes with passion and commitment. The entire industrial sector, from cement and steel to design and construction majors would benefit enormously from this initiative, given the widespread upstream and downstream linkages of such residential construction activity. In fact, the ‘billion homes’ initiative would need to be conceptualized in terms of several thousands of environmentally harmonious townships all across India, in and around the established urban and rural habitats, with requisite rail and road connectivity.

Food security

India being a largely agrarian nation, setbacks to food production due to monsoon failures and floods on one hand and lack of incomes to secure daily food on the other hand are the two major handicaps of the economy. Certain State Governments have attempted to mitigate the adverse impact by cheap rice schemes, supported by public distribution system. Leakages in the public distribution system as well as inadequate quantities and quality of supplies to the system, together with the accompanied budgetary subsidy impact have curtailed the positive impact of these measures.

The answer to the financial constraint lies probably in taxing those segments of the food processing industry that cater to affluent sections (eg., fast foods, functional foods, aerated drinks, spirits and beverages) and recycle the money to beef up the public food procurement and distribution systems. Expansion of the subsidized rice or wheat scheme and supplementation with another essential nutrient such as lentil or egg would need to be taken up as a national food security program with adequate budgetary provision.

Universal education

Universal education needs to be a fundamental right as well as a basic obligation for the entire population. Eradication of child labor, with the provision of durable shelter and food security, should hopefully curb the practice of keeping poor children occupied in hard labor denying them the vital time for, and access to, education. Significant increases in the availability and quality of public school system, covering nursery, primary, secondary and vocational schools are urgently called for to support the objective of universal education.

Non-governmental organizations (NGOs) and socially responsible organizations can support this initiative through supply of qualified and committed teachers, which alone can enhance the real utility of the schooling system. Apart from budgetary support, encouraging private or public sector corporations to adopt and fund public schools for better quality of education as part of their corporate social responsibility also would go a long way in supporting universal education. Simultaneously, all higher education institutions should be mandated to reserve at least ten percent of their intake for economically handicapped but meritorious students. Food security offers direct benefit for education. The mid-day meal scheme pioneered by the Government of  Tamil Nadu for school going children, for example, led to a sharp increase in enrolment in schools. Reinforcement of such programs with more hygienic and nutritious food can help the objective of universal education even more significantly.

Healthcare for all

Reference has been made in one of the author’s earliest posts to a pioneering initiative undertaken by the Government of Andhra Pradesh to provide access to healthcare to the needy. The program called ‘Arogya Sri’ provides free treatment to the needy not only in government hospitals but also in corporate hospitals. This coupled with an emergency ambulance service which covers the nook and corner of the State has had a positive impact on the health security of the general population. Though initially it was feared that such schemes would impose an unmanageable subsidy element it has been established that the State’s financial system, though by no means healthy, has adequate resilience to absorb the impact of this noble endeavor.

The Western model of health insurance which is based on ‘pay and benefit as per affordability’ is not appropriate for the large number of ‘low income’ and ‘no income’ group of population in India. Direct intervention by the governments, NGOs and private sector in terms of providing quality hospital facilities and nursing services is a more relevant model for India. Given the fact that the direct healthcare system can be managed if the subsidy element is absorbed by a wider range of public-private partnerships, it is appropriate to extend the ‘Arogya Sri’ scheme nationally across all the states with relevant reinforcement.

Multi-modal connectivity

An efficient multi-modal transportation infrastructure comprising rail, road, air and waterways is a vital superstructure which can nurture a welfare state with productive work-life balance. These four transportation sectors are completely national and intrinsically geographic in any country. Absence of capital goods, consumer goods or food products can be made up through imports or barter mechanisms. Transportation infrastructure, however, has to be developed only within a country. India needs to take great strides for upgrading its transportation structure. While transportation systems call for massive outlays, various advanced nations would be willing to support futuristic transportation systems as evidenced by the India-Japan cooperation on industrial freight corridors that has been recently cemented. A multi-modal transport plan needs to be firmed up and global collaboration arrangements established on an urgent basis by the Indian Government.

Introduction of high speed bullet trains connecting all the State capitals would be a fundamental pre-requisite for enhancing the efficiency and productivity in the Indian transportation system. An entirely new rail network needs to be built across the length and breadth of the country to support the introduction of the bullet trains. Similarly, governments have to move away from archaic concepts of flyovers and take up construction of elevated highways for providing total solutions to intra-city transportation. The golden quadrilateral highways program needs to be expanded into a golden multi-lateral highways program connecting all Tier 1 and Tier 2 cities. The need for modern air transport may be less obvious as it is seen to cater to higher income segments, with an adverse impact on overall fuel consumption. However, air transport has also demonstrated how it can dramatically alter the mobility equation of a country, both in respect of personal and cargo movement. Waterways, in contrast, have been largely ignored in the country despite their being an environmentally clean and fuel-efficient option. Cleaning up of inland waterways and development of new coastal shipping pathways will be helpful to introduce an additional element of productivity in the overall transport system.

POGA for energy assurance

If the wheels of society, industry and economy are to move uninterrupted, and with increasing speed, to fulfill higher economic aspirations, the engines of the growth have to be adequately powered. Power, Oil, Gas and Alternative energy (POGA) sectors are the four vital sectors that require major attention to ensure energy security for a nation that is hungry for growth. Fortunately, unlike other infrastructural sectors, most advanced nations are equally interested in achieving energy security and are willing to provide their technologies and resources to exploit and commercialize sources of energy in countries such as India. India also must treat energy security as a global business that needs to be secured through access to, and control of, energy sources across the globe. Indian Government would need to draw up a strategic global energy plan that meets India’s long term energy requirements.

Over the last few years, despite liberalization the POGA sectors have not received the sustained policy thrust that these complex sectors deserve. Polices for super-mega power projects as well micro-mino power projects need to be put in place along with policies for efficient energy distribution and viable energy pricing. Oil and Gas sectors need to be strengthened by providing the ability for state run ONGC and GAIL corporations to aggressively explore and exploit global energy sources. Integration by oil refining companies into energy exploitation and generation on the models of western oil companies will also need to be considered. Importantly, new corporations have to be established to invent and / or assimilate technologies for exploitation of alternative energy sources such as solar, wind, thermal and bio-energy modes. Grants and subsidies as well as long term tax breaks for private and public sector corporations operating in the alternative energy field also need to be considered. The POGA sector, in terms of generation, distribution and usage of energy will play a critical role in reducing the carbon footprint of the country.

Digital workshop for the world

Over the last few years, the global view that India would only be the world’s back office while China would ideally be the world’s workshop has been changing in India’s favor. Global companies have started to recognize that India could be a high quality-low cost manufacturing base for several consumer and industrial products. India has certainly made such a mark in automobile and component sector and is, in fact, ahead of China in these domains. However, in respect of electronics-driven product categories, India lags behind China in a significant manner.

Digitalization and electronics have been the core of most new product development. Multinational corporations who possess such technologies are unwilling to establish such development and manufacturing bases in India unless majority or total ownership of such enterprises is assured in their hands. India’s restrictive policies on joint ventures and foreign investments in high technology areas and the propensity of Indian partners to hold on the majority voting rights and / or management control have limited the flow of foreign investments and induction of advanced technologies into the electronics sector in the country. Taking a cue from China, Indian industry and government would need to create helpful conditions for overseas corporations developing India as their preferred manufacturing destination, even for the most advanced electronics goods.

‘Re-farming’ the nation


While reforms has been the most popular buzzword of the Indian economy for the last two decades (1990-2009), the new decade of 2010-2019 requires a new buzzword that strengthens India’s agrarian roots to provide total food sufficiency and even achieve exportable surplus to meet the needs of the less privileged nations. This requires construction of new dams, inter-connection of rivers, desert and dry farming technologies and massive afforestation to counter the dwindling green belt in the country. Even as the economy and industry would directly benefit from economic reforms, the economy, industry and the society as the whole would benefit from a massive drive to ‘re-farm’ the nation.

‘Re-farming’ of the nation requires a cultural shift away from endless and chaotic urbanization to a more modern and balanced rural thrust which preserves the natural fundamentals of a rural economy while integrating the amenities of an urban economy. Several other initiatives discussed earlier such as social security, infrastructure stability, energy assurance and transport connectivity would go a long way in reversing the flow of men and materials from rural to urban economies. It is not uncommon to witness in Japan, environmentally clean factories situated in close vicinity of lush farm fields signifying a harmonious blend of the agrarian and industrial sectors. There is no reason why industrial development in India should be at the cost of agricultural development. Rather than convert huge tracts of land expansively into sparsely used industrial or service zones, ways and means must be found to promote co-existence of agricultural, industrial and service economies.

Reaching global scale

A few industrial houses as well as a few first generation enterprises have understood and executed with perspicacity plans to achieve global scale and scope. Global scale with comprehensive scope enables companies access the best technologies, resources and customer bases, internationally. That said, a vast majority of industrial and business enterprises which have potential to reach global scale are content to remain fragmented and sub-optimal in scale for fear of loss of identity. The typically Indian emotional bonds of growing and staying together have inhibited companies from seeking synergies from mergers and acquisitions, nationally or internationally.

A new mindset that subordinates professional aspirations to corporate potentialities and derives individual prosperity from national wealth could lead to a sea change in the traditionally ambivalent approach of the Indian businessmen towards individual business identity versus global business standing. Banking industry, automobile industry, pharmaceutical industry, software industry and FMCG industry are some of the industrial sectors which would benefit from selective India-centric or cross-border amalgamations based on product and market complementarily as well as synergy of capabilities. Industry associations as well as individual corporate honchos and entrepreneurs are well-placed to initiate this process. The Central Government, by setting up a ministry similar to Japan’s famous Ministry of International Trade and Industry (MITI), now Ministry of Economy, Trade and Industry (METI) can help such orderly industrial progression with strategic oversight and guidance (and not necessarily, control!).

Innovating a generic mindset

India had centuries ago, through its brilliant scholars, made phenomenal discoveries and contributions in the fields of astrology, astronomy, healthcare, architecture, civil engineering, administration and financial management. Over the last few centuries, however, India has become a follower rather than a leader in several domains, being content with replicating products, duplicating technologies and recycling business models, either from the West or the East. In doing so, however, India did find a new niche in reverse engineering, technological adaptation, follow-on product development, generic manufacture and cost-competitive global integration. In order to become a leading and vibrant nation, India, however needs to combine its acknowledged “generic follower” skills with innovative pioneer capabilities.

Any generic-follower model has inherent limitations of operating in the tail end of a product life cycle where the price-cost equations leave uncomfortably thin profit margins. Time and again, even in an industry such as the software industry where Indian talent is globally recognized, break-through product concepts continue to emanate from the West. Industrial sectors which have high intellectual potential in terms of the human resource base should make specific and sustained efforts to incubate new products by investing in special development laboratories. Several of the sectors listed earlier as well as additional ones including automobile, pharmaceutical, information technology, watch, gems and jewels, food processing, automotive components, and design, development and engineering services, have the potential to add a significant innovation edge to their broader generic portfolio and emerge as unassailable global players of multiple facets.

Epilogue: Incredible India, from 2010 to 2020

The journey from 2010 to 2020 can be exciting and fascinating for India if the vision, strategies and execution are aligned to build a truly Welfare State with robust social and industrial infrastructure and high productivity. With the vision and strategy outlined in this article, India can be a self-assured nation where complete social security is ensured through universal housing, food, education and healthcare; an upwardly mobile nation in which multi-modal transportation enhances connectivity; a powerful nation which has the energy sufficiency to turn wheels of progress faster: an advanced nation which houses a futuristic digital workshop for the world, a bountiful nation which ‘re-farms’ itself industrially and a creative nation which adds an innovative edge to all the generic competitiveness that it possesses. This ambitious blue print does require massive financing. As with micro-enterprise formation, a worthy and genuine concept, even at a daunting national scale as outlined herein, will not be found wanting for national and international funding support. The India Welfare Plan, 2010-2020 outlined in this article has the potential to transform India into a truly global power bringing cheer and pride to all the Indians as never before.

Goodbye 2009, and Welcome 2010!

Posted by Dr CB Rao on December 29, 2009

Corporation as a Totalitarian State: Reasons and Remedies

Over the centuries of industrial and economic development, the corporation has grown as the most powerful and pervasive form of human organization for achieving economic goals. There has, however, been significant debate over the last few decades as to whether the typical corporation is run with the most optimal objectives and outcomes, which are appropriate in a broader economic and social context. The debate has become shriller with the emergence of individual corporate malfeasance such as Enron and Satyam or collective corporate misdemeanor as that found in recent collapse in the Wall Street. Concepts of exchange regulations, corporate governance, corporate social responsibility, board independence or CEO accountability have provided certain ameliorative measures but have not altered the way the typical corporation is fundamentally run.

Whether the overall context of the country is democratic or autocratic, the corporation itself has surprising global commonality in its primary characteristics, across countries and cultures. In essence, provocative though the statement may appear, the corporation continues to be set up and managed as a totalitarian entity. As one is aware, a totalitarian state is one where a government subordinates the individual to the state and strictly controls all aspects of life by coercive means. In the initial years of the corporation when Theory X management was the dominant practice, a typical corporation was completely exploitative. Emergence of Theory Y management and understanding of organizational behavior, no doubt, brought in individual motivation as a key anchor of modern management. Yet, it cannot be disputed that the corporation continues to be run as a totalitarian entity where the employee has to be subordinate to the Corporation.

Corporate totalitarianism would not be an issue but for the paradoxical convergence in the mindsets of employees and the leadership to be run in a totalitarian manner. The leadership of a corporation is charged with the task of wealth maximization. More specifically, it has to maximize the corporation’s revenues, profits and market capitalization at all times. So long as a corporation is in a legally approved domain it has to do, and will do, all it can to maximize its financial parameters. A corporation in the tobacco or spirits industry, for example, seeks to maximize the consumption of the tobacco products or liquor products despite the harm such goals may cause to the society and environment. In an analogous manner, employees are increasingly tuned to concepts of variable pay and stock options which link their compensation structure and career growth to business maximization. The individual in today’s material world is completely subordinate because of either individual volition or leadership compulsion to a paradigm of corporate totalitarianism.

Defining (and defying) corporate totalitarianism

Definition of corporate totalitarianism is a complex subject. In a democratic state the ruling political party and its government secure a mandate, however imperfect the democratic processes are. They, therefore claim some transparency and legitimacy in translating a mandate into action, recognizing that a gross travesty could vote them out of power the next time. In an autocratic state, where a single monolithic party dominates the governance, as in the case of China, the government can claim the backing of a well articulated party ideology in seeking to govern in a totalitarian way. In a corporation, however, despite the existence of shareholder mechanisms it is the corporate leadership that determines how a corporation should be run. As long as a corporation remains in legal and regulatory confines, and in addition delivers reasonable investor returns, the manner in which a corporation is run never begets a question. As a result, what a corporation should have, and would have, achieved with better corporate democracy or ideology, as the case may be, is never understood.

Difficult though it is to define, corporate totalitarianism lends itself to certain markers. A corporation which remains rooted in businesses that are socially less desirable or in markets that are prone to questionable practices is often blinkered from exploring better but more challenging options due to lack of free thought and open ideology in the corporation. A corporation where leadership positions are filled through nepotism or crony capitalism is able to do so due to the abject surrender of employee merit to leadership muscle. A corporation which always maximizes short run profits to the detriment of long term value does so because it is more expedient to run a generic business than create an innovative business. In all such cases, and more, lack of enduring values that optimally bind the corporation and the society is a key cause.

Progressive and intelligent corporations mitigate the temptations of totalitarian behavior by enabling free intellectual thought in their organizations, which in turn helps them move into better product-market segments, subscribe to corporate meritocracy and embrace science and technology in a big way. The case of ITC Ltd in India is a case in point in respect of product-market segments. Once completely confined to the socially inimical domain of cigarette manufacture ITC, the corporation became a socially responsive conglomerate by diversifying into paper, stationery, hotels, hospitality, food processing, agri-business and information technology as well as e-choupals (rural electronic marketplaces). The case of Hindustan Unilever is a case in point in respect of corporate meritocracy. Though traditionally in simple product lines like soaps and oils, HUL became a pioneer in nurturing highly competent organizational talent that introduced several innovative concepts of business growth and inclusive marketing in India, offering in the process its leadership talent to the parent Unilever’s global operations. The case of Tata Motors is a compelling case study of an Indian corporation becoming a global leader by acquiring leading edge scientific and technological capabilities in design and manufacture of automobiles.

Corporate leadership that is intellectually driven as much as it is financially driven has a better chance of resisting totalitarianism and instead promoting inclusive, yet competitive business growth. Such corporations institutionalize the anti-totalitarian DNA in the organization by recruiting the brightest talent through open recruitment practices from educational campuses, establishing intensive on-the-job and off-the-job training programs, providing challenging professional environment and undertaking objective assessment of performance for differentiation. This, however, is easier said than done because of the way corporations are organized to concentrate power in its leadership and the manner in which the university system turns out talent of varying levels. There is a four-way grid that combines two dimensions of leadership with two dimensions of talent pool.

4Q leadership-talent grid

Essentially there exist two types of leadership, autocratic and participative, and two types of talent systems, meritocracy and mediocracy. These are, of course, representative of two extremes in each case, identified for conceptually illustrative purposes. There could be shades of grey in each case as well as multiple combinations. Autocratic leadership implies top-down administration of vision, strategy and execution, together with controlled employee management. Participative leadership, on the other hand, represents a consultative evolution of vision, strategy and execution, together with facilitative employee management. Meritocracy implies presence of, and reward for, high levels of skills across the organization. Mediocracy represents middling, average skill levels across the organization, and are rewarded uniformly regardless of performance.

These four combinations may be viewed simplistically as autocratic mediocracy, autocratic meritocracy, participative mediocracy and participative meritocracy. Autocratic mediocracy represents the face of a completely totalitarian corporation where the leadership’s writ is total and unquestioned not because of its strength but because of the inability of the organization to engage in constructive intellectual debate. Autocratic meritocracy represents a paradigm where the ability of the organization to chalk out and execute creative strategies is often stymied by the insistence of the leadership to conduct the affairs in its own way, thus eliminating grassroots ownership and participation. Participative mediocracy reflects an enlightened leadership relying on a pliant organization to develop consensual approaches that fail to be competitive in the marketplace. Participative meritocracy is the only optimal combination that brings out the synergy of progressive leadership and competent talent pool.

Leadership teams and organizations need to realize the importance of participative meritocracy as a means to eliminate totalitarian trends from the corporation and promote healthy internal debate in the corporation. Participative meritocracy helps in the development of economically sustainable and socially responsive corporate ethos and establishment of a process and systems driven organizational eco- system. Comprehensive and thorough planning, focused and speedy execution, and differentiated and rewarded performance are the hallmarks of participative meritocracy. Each corporation can then develop its unique identity which unequivocally reflects the value system that it subscribes to, with customized reference to the business domain it operates in.

Totality of purpose, the true anti-totalitarian marker

Willy-nilly, corporations and leadership teams become prisoners of their own history and legacy. In today’s fast changing world product lifecycles and even business lifecycles are becoming shorter than ever. A company committed to the paper and publishing business, for example, cannot support all of its growth plans only through the conventional paper medium, given the pervasive impact of the digital age. A manufacturing industry can no longer conduct its operations oblivious to its carbon footprint and in ignorance of clean technologies. The inability of organizations and leadership teams to recognize such trends of inflection makes them all the more defensive, getting increasingly rooted in a past which has no connect with a dramatically different future. Such corporations attempt to survive by totalitarianism only to wither by that.

Corporations and leadership teams, on the other hand, must keep an open mind on the totality of purpose of their existence and identify the right motive force for growth. This requires the leadership teams to challenge the very domains that provide today’s revenues. One may hypothesize that had the global automobile industry been more proactive in bringing out clean motive power it would have made a more proactive and positive contribution to the phenomenon of climate change. Novo Nordisk derives all of its billions of dollars of turnover from injectable insulin products. It requires a great openness of mind on the part of its leadership team to develop an insulin pill, as it is presently doing, which if successful could not only change the face of anti-diabetes treatment but also threaten its own established investments in the injectables domain.

Lack of intellect, competence and free thought in organizations promotes corporate totalitarianism to the detriment of a corporation’s broader economic and social purpose. Progressive leadership teams must assiduously seek the totality of the corporation’s purpose by upgrading their own competencies from time to time and nurturing a climate of open intellectual thought in their organizations. Those corporations and leadership teams which provide the due importance to free and creative thought, and eliminate undue emphasis on executive compliance and conformity would be providing the right incentives foe knowledge driven transformation. This approach would help the corporations to lead change, and leverage change for achieving a totality of sustainable purpose, with reference to the economy and society.



Posted by Dr CB Rao on December 27, 2009

Competence-Loyalty Dichotomy: Separating Grain from Chaff

Individual survival and group living have been the two fundamental, though apparently bipolar, aspects of human living from the start of civilization. As administrative, industrial and political organizations evolved over time, teams have emerged as the basic platform of organized living. The evolution of the modern form of corporation gave a new meaning and role to teams and team leadership. From the frontline teams at work for departments to the apex leadership teams at the helm driving corporate futures, management of teams offers its own challenges and opportunities.

Leaders provide hope and aspiration for their teams and in return gain their trust and support. This relationship is not always reciprocal; in some cases leaders trust the teams more than the teams trust them while in other cases the teams trust their leaders more than the leaders trust them. Traditionally leaders across generations relied on the formal organization to achieve consensual action and leaned on the informal organization to push through specific agendas. The balance between the formal and informal organizations is levered by the leaders through their loyalists, with the attendant pros and cons. This apparently perplexing sub-optimization of the team organization needs a behavioral evaluation.

Complexity needs competence

Management of modern day organizations, whether business, administrative or political, has become a more challenging and complex task than ever, with a heavy responsibility devolving on the leaders. In today's competitive environment, the leaders are required to build cohesive, high performance leadership teams with high competency metrics to be able to discharge their onerous responsibilities. In a well- balanced leadership team all missions, domains and members should display equal competence and evoke equal confidence.

Yet, it is not unusual for leaders to be selective in the way they repose their confidence across missions, domains and members. Some members gain more confidence than others through well demonstrated loyalty. Some members gain more appreciation than others through well demonstrated performance. Loyalty is often accompanied by total compliance to the leader while competence is accompanied by a certain degree of independence. A leader as much as a team member needs to differentiate between loyalty and competence in an organizational context.

Confidants and loyalists

Both loyalty and competence have merits if they are aligned to enhancing the performance of the entity. A competent loyalist in a leadership team is someone who not only appreciates the leader’s ideas and personality but also improvises on it for better corporate performance. A competent loyalist becomes the leader’s confidant. The competent confidant wins praise from the leader and the team not merely because of his loyalty and commitment but also because of his performance and perspectives. A confidant becomes a trouble shooter, and even a successor to the leader. From Henry Kissinger of the US Government to Steve Ballmer of Microsoft Corporation, organizational history has case studies of team members who fused competence and loyalty to emerge as dominant forces of teams. A loyalist who is only marginally competent or is even incompetent, on the other hand, drags down organizational performance. Ordinary loyalists observe, act and speak as proxies for their leaders skewing the organizational balance in the process.

In the complex modern day organizations, confidants who are trouble shooters are welcome in the teams; they even signify a typically Darwinian way of leadership selection. On the other hand, team members who seek a loyalty driven role should be less than welcome; they throttle independence and objectivity, often bringing bias into managerial processes. A competent confidant has the right perspectives for the future. An ordinary loyalist however largely remains in the past.

Competent confidants boost an organization’s drive into the future while ordinary loyalists impede its ability to move with, let alone ahead of, times. A loyalist, always waiting for the leader’s cue, adopts a cautious approach that inhibits independent and proactive thinking on the part of others. A confidant who is absolutely confident of his capability as well as loyalty is, on other hand, willing to even openly differ with the leader as long as it would such challenge helps the company’s future.

Despite these factors, leaders probably tend to have more run-of-the-mill loyalists than out-of-the-box confidants in their teams. When a loyalist gets preferred for loyalty rather than competence to manage crucial missions, the very choice signifies a sub-optimal performance benchmark that weighs down the overall organizational performance. Yet, the loyalist’s compliance instincts and the leader’s dominance compulsions make for an puzzling combination. The key to the puzzle, however, lies in the leadership realpolitik that pervades organizations.

Leadership 'realpolitik'

Complex leadership and management challenges are involved in setting up and growing business corporations or administrative entities. These challenges include, among others, crafting of a vision, drafting of a strategy, creation of an organizational structure, raising of resources, establishment of facilities, assembly of inputs, opening up of partnerships and above all, high quality product delivery for the marketplace, all of which require a high level of business appreciation and functional excellence. These activities also need to be continuously fine-tuned to counter and even stay ahead of the inevitable competition. Undoubtedly therefore, superior leadership and management skills are called for on the part of not only the business leaders but also his or her leadership team.

That said, there is a dimension of realpolitik beyond the textbook definition of leadership and management that governs corporate or administrative leadership. Realpolitik has its origins in politics or diplomacy which dictates formulation of policies and actions based primarily on practical considerations, rather than ideological notions. The term realpolitik, however, also pejoratively implies politics that are power-centric, and not necessarily principle-centric and which are often Machiavellian. Managing organizations requires not only leadership skills but realpolitik attributes to be able to remain at the helm, satisfying multiple internal and external stakeholder pulls and pressures. Leaders being also careerists as anyone else need loyalists to be in control of the corporate ship cruising in the choppy business waters.

Loyalist – joker in the pack?

The ordinary loyalist is very much like a joker in a pack of cards (no pun intended). Those who know card games understand that the joker card plays an extremely beneficial (and occasionally harmful) role in a card game. A joker card can substitute for any card of any rank, symbol or color and hence affords tremendous flexibility in forming winning sequences and sets. The holder of a joker card surprises the rest by forcing a quicker win than is usually anticipated. While in a game of cards serving of joker cards is a matter of chance, in an organizational setting the evolution of loyalist in a team is a matter of historical inheritance as much as it is a designer act.

A study of corporations that have seen dramatic failures, from Enron to Lehman, points out that unbridled power of the corporate leaders has been a root cause of corporate collapse. Such failure comes with circumvention of processes through motivated management of leadership teams. A chief financial officer or a chief business officer in some cases and a chief technical officer or a chief marketing officer in other cases have enabled the typically dominant corporate leaders embark on wildly adventurous paths. Castle-in-the-air concepts of virtual energy trading and bubble-beyond-reality of sub-prime lending are reflective of how confidants of corporate leaders could hijack organizations and distort economies. The leader’s loyalist provides a total malleability to the leadership fiber to the detriment of organizational solidity.

Loyalty tips the balance

Typically a leadership team varies in size depending on whether the company is functionally organized or divisionally managed and whether it is regional or global in its presence. The multiplicity of views in large teams can at times be highly vexatious and energy-consuming for corporate leaders. The leader can exercise positional power only to a limited extent to achieve convergence. Realpolitik comes in handy to develop paradigms based on quick conclusions rather than lengthy deliberations, even if the later were to be beneficial in the long term.

Heads of corporate functions are particularly helpful for the corporate leaders in drawing business realignments. That is because they have the capability to shape future plans, allocate resources, recruit manpower and control certain shared services. The strengths of individual business operations can be skillfully undermined by the realpolitik of shared services with a façade of corporate optimization. Loyalists can be divisive too. The loyalist can launch frontal attacks on inconvenient members at the behest of his leader, fracturing the leadership team into multiple fractions. The leader finds it easy to implement his plans with a divided house despite a fractured mandate. In all of the scenarios discussed above, the leaders stay on but the businesses stagnate.

Loyalty to the leader or passion for the company

The excessive emphasis on a singular leader as the driver of corporate growth is in enigmatic contrast with the elaborate mechanisms put in place for board oversight and corporate governance. The increasingly enormous influence the leader has come to wield on corporate affairs has led to the spawning of the loyalty culture to the detriment of commitment to the company. Genuine leaders must overcome the temptation to seek loyalty for him from his team members and instead encourage his team members to develop passion for the company. Visionary leaders recognize that it is the institutions that are perpetual and leadership achievements constitute but mere chapters in unending histories of enterprises.

The competence-loyalty dichotomy disappears when it is realized by the leader and the team members that the leadership interests are best served only when the corporate interests are best served. Team members who have ample loyalty for the leader but little passion for the business are a liability while members who are independent of the leader but passionate about the company are an asset. Passion for business emanates from an innate desire to achieve self-actualization while loyalty for leader comes from a comforting instinct to promote mutual aggrandizement. Once the hypothesis that institutions are larger than even the individuals who establish or grow them is accepted the competence-loyalty debate gets settled irrevocably in favor of the former.

Competencies make conglomerates

Companies with a progressive and confident leader and a large number of competent confidants have quickly evolved as successful conglomerates and eventually became leading industrial houses. High performance teams are an asset to the company even though individual business leaders appear to challenge corporate hegemony. Capable business leaders aggressively perform but also openly demand space for performance. They are conscious of their domain and business expertise and view their performance as a vehicle to position them as the future leaders. In a conglomerate or a diversified business, business leaders compete, rather than collaborate, to establish their credentials. Left uncontrolled, the leadership battles can be self-consuming.

In such organizations, conflicting aspirations compete for scarce resources, different businesses shape up at different points of value curve and burning desires lead to organizational bushfires. The corporate leadership teams in such organizations are bound to be in constant turbulence. In a conglomerate corporation, the confidant typically emerges from the businesses preferred by the corporate leader or select corporate functions close to the corporate leader. The deft leader in such situations chooses a performance driver and an opinion maker from the leadership team to harmonize the multiple directions of a conglomerate. Many conglomerates have failed to utilize their diversified positioning and cash resources objectively due to the failure to nurture competent confidants across the spectrum. There is no reason why only Tata Motors, Tata Consultancy Services and Tata Steel should be the flagship companies of the Tata Group when with the right harmony between the group leader and business confidants, the Group would have been a leader in various other segments like power and chemicals.

Confidence with competence

Indian business families have discovered to their advantage that the concept of having loyalists is detrimental to the professionalization and growth of family businesses. Gone are the days when trusted family lieutenants bereft of academic qualifications or business experience dominated the boards or management teams simply because of significant native wisdom and unflinching loyalty towards the family. The fast forward growth of Indian family businesses can be traced to the downplaying of the loyalist culture.

When family businesses have gone through this positive metamorphosis, it is paradoxical that professional organizations, should succumb to the loyalist culture. A dependence on loyalty as a proxy to leadership is corrosive in that it weakens the resolve of the leadership team to debate issues objectively and professionally. The loyalist culture is also debilitative as it enhances non-formal authority and misaligns formal and informal organizational structures. The leaders who find the loyalty culture to be expedient initially often find their own leadership authority weakened eventually.

A virtuous leadership team is one which is open, transparent and collaborative in discussing vision, goals and strategies, in making resource allocations and in measuring and rewarding performance. While individual businesses, domains and members of a leadership team need to be competitive, the dynamics should be balanced by self-regulation. Similarly while teams need to be integrated and aligned with the leadership, the mechanics should be supported by adequate autonomy provided by the leader.

A corporate leader and his team have tremendous strategic responsibilities towards the company and all its stakeholders. A corporate leader who expresses open confidence in the team, sans the loyalists would reinforce the corporate performance through collaborative competition. Individual members can support this process by acquiring cross-functional and cross-business skills which could help them contribute equally in strategic deliberations. A completely integrated and aligned leadership team with high competency metrics will be truly inspirational for a company or an industrial house, and its stakeholders.


Posted by Dr CB Rao on November 29, 2009

The Fine Art of Business Collaborations: From Hidden Agendas to Shared Missions

It is a dream for any company in an industry to be so integrated and so diversified that it is able to exercise complete control over its value chain and provide the complete spectrum of its products to all its customers, globally. Such a perfect monopoly, however, is neither economically feasible nor socially desirable. It is no wonder that corporations around the world, within industries and across industries, are recognizing the need to collaborate and maximize value for themselves and all their stakeholders. That said, there is still far lower emphasis in corporations on collaborations, compared to competition as a means of value maximization. This deficiency is even more palpable in India. This arises from an inadequate appreciation of the power of collaboration and an insufficient availability of talent to manage collaborations as they ought to be.

Collaborations: value drivers

In today’s world technology is becoming both specialized and expansive at such a fast pace that it is unproductive for any firm to attempt to do everything by itself. By collaborating with segmental players, companies can focus their energies on developing new products on a continuous basis. This collaborative model has indeed been demonstrated most effectively in the automotive and electronics industries, although there is considerable ground to be covered in these industries as well. On the other hand, most other industries including such intellectually driven industries such as pharmaceuticals are paranoid about self-reliance and circumspect, if not suspicious, about collaborations.

As a result, while the automotive and electronics industries continuously offer new products and services at an amazing pace offering better choice for the consumer, introverted industries such as pharmaceuticals are facing new product drought which could threaten the very existence of such industries in future. The concepts of integration and differentiation which are fundamentally investment- intensive and hence cost-accretive can be made market-friendly and value building initiatives if collaborative strategic relationships between specialist companies can be fostered.

Technologies: collaboration drivers

A strong collaborative position emerges from core competencies in science and technology. Manufacturers of computers, mobile phones and cameras, for example, are immensely benefitted by the core competencies of chip makers such as Intel and AMD in developing high performance processors for a variety of applications. Automobile manufacturers are significantly benefitted by the core competencies of their component makers in upgrading component and overall system performance. As a result, firms within and across industries that are engaged in collaborative product development and manufacture are able to continuously expand the boundaries of performance.

In this collaborative model, maximization of corporate performance emerges as a logical corollary of maximization of customer satisfaction with better product choice. The collaborative model focuses on creating product attributes that are not limited by current input functionalities and instead focuses on motivating the participants of the collaborative model to invent new functionalities. In contrast, firms and industries which seek performance maximization through monopoly control over the value chain tend to face economic extinction in the long term.

Markets: value determinants

Very often, strategists and CEOs make the mistake of judging value propensity of their firms only by way of internal value chain optimization and by deployment of internal performance metrics. The questions that they often ask themselves relate to the internal efficiencies in each of the primary functions of product development, manufacturing and marketing, and the several ancillary functions that support them. Very rarely, they focus on how well those functions are collaborating to determine a benchmark value for their firm, let alone explore if the value chain can be optimized for maximal value by bringing other players from within the industry as well as from outside the industry into the collaborative loop.

Companies which have listened to the signals from diverse markets to fulfill their differentiated needs, and collaborated for new technologies and new inputs to create new products that fulfill such needs have clearly outperformed others. Tata Motors outperformed its peers in India consistently as it has excelled in developing products that meet segmented customer needs. The roadblocks to a more universal implementation of this collaborative principle of business reconstruction stem largely from introverted corporate and professional mindsets that are unwilling to invest in business innovation and instead seek to maximize short run performance.

Extroverted mindsets: value visionaries

Corporate and CEO mindsets need to look beyond the current business models and delivery platforms on a continuous basis to extract the maximum value from the happenings around the world. Except in monopoly and patent protected domains, the competitive sustainability of a product is limited to one or two years and that of its manufacturing platform to four to six years. Strategists and CEOs, rather than periodically reinvent the value chain, fall into the trap of trying to extend product and manufacturing life spans until the last dollars are squeezed out of them. In the process, they make their companies highly vulnerable to more extroverted and more proactive competition.

A computer maker who is concerned about the current stocks and who holds back from either the development or the launch of a full range of upgraded models simultaneous with the launch of the latest operating system (Windows 7, for example) makes itself vulnerable to a competitor who has been more proactively collaborative with the developer of the new operating system. Steel plants which recognized the strategic importance of mines, petroleum companies which recognized the source vitality of oil fields and foundries which recognized the criticality of die, pattern and gating system making as a core competence present examples of companies looking beyond straightjacket business models to explore sustainable models of collaboration across industries and geographies. Value visionaries are those CEOs and strategists who constantly search for newer and more collaborative ways of doing business.

Talent: primer for collaboration


A corporation’s ability to look beyond the zones of comfort stems from the availability of talent that can identify new market needs, explore new delivery platforms and create new business models. The global delivery model pioneered by the Indian IT firms to meet the IT needs of global customers is a classic example of breaking the mould. The efforts by GE to develop new low-cost diagnostic devices for the emerging markets and taking them back to their developed markets is a more recent example of reverse globalization. Typically, talent pools from different functions, different industries and different geographies are harnessed together to make such game changing events possible.

For talent driven business optimization to happen, CEOs and strategists must have an appreciation of the constantly changing drivers of value in a business model. These could relate to a fundamental redefinition of customer needs which a firm seeks to meet, the configurations of products that best fulfill the changing needs, the material inputs, manufacturing processes and conversion technologies, facility standards, quality levels and delivery mechanisms. Companies must nurture talent that looks beyond current comforts and constraints to seek new ways of doing things. Strategists and CEOs in particular need to understand the essentiality of cross-corporate and cross-industry collaboration, and need to be suitably talented by themselves to lead by example.

Negotiation: foundation of a collaboration


Any collaborative relationship requires negotiation to make it happen. Negotiation is the complex and often tiresome process of two companies attempting to develop common ground to meet future strategic objectives. Hidden agendas destroy negotiations and collaborations while shared missions strengthen them. A good negotiation posture can only emerge from strategic clarity on the drivers of industry evolution and the determinants of firm’s competitiveness, with and without the proposed collaborative framework with the potential partners. A fruitful negotiation can occur only when the partner for negotiation is chosen based on detailed desk research and on-site due diligence. A smooth negotiation process can only happen with deployment of negotiators who understand the essential ingredients of viable business and the subtle nuances of a win-win collaboration.

The above three essential steps of negotiation are sequential in nature. Any attempt to invert or mix up the sequence or priorities would invariably result in a botched up negotiation. Negotiation of a business collaboration can neither be top-down nor bottoms-up. It is one process that is typically driven by a mid-tier organization that establishes a cooperative framework based on business fundamentals. For the negotiation to succeed in terms of a sustainable collaboration, the top leadership should be irrevocably committed to the three essentials of negotiation identified above and the operating level should have adequate strategic appreciation.

Hidden agendas: value destroyers

The purpose of any collaboration is to create synergy for enhanced performance of the partners. The process of negotiation seeks to create a charter for achieving such synergy. The biggest roadblock for any negotiation is the opaqueness which each partner faces in its attempt to understand the other partner’s motives. The fundamental prerequisite for any successful collaboration is therefore mutual trust. Trust is required because collaboration involves exchange of information, based on confidentiality agreements, on market plans, product plans, technologies and costs and a host of confidential data. Hold-back of information on these fronts leads to sub-optimal and at times counterproductive collaboration.

The typical negotiator, either as a company or as a professional representing the company, has therefore the challenging task of establishing trust as the fundamental lever for a successful collaboration. Trust emanates from strategic clarity, leadership commitment and negotiator skill. Trust emanates from each party having faith in its own competencies and a belief that the collaboration would not short-change on its strengths. Collaborations that are unevenly poised on mutual strengths or weaknesses and mutual risks or rewards are more likely to fail. Even if a collaborative framework is cobbled together initially it will eventually flounder on mutual non-performance.

Strategic clarity: shared missions

Any collaboration must fit into the long term strategy of the company. Collaborations must be leveraged to supplement technologies, markets or people. They should play a clear role in the integration and diversification value chains of the company. This means that a company seeking a collaboration must have a strategic roadmap with a role clearly assigned to each strategic partner. The company should be able to visualize a performance scenario with and without the collaboration and be prepared to share with the partner. It is heartening that progressive companies develop strategic clusters of related companies with whom they are able to share their long term technology perspectives and agree on shared missions.

Strategic clarity on collaboration roadmaps and enabling shared missions is generally missing in the Indian scenario. The more knowledge driven and the more competitive a company considers itself the more introverted and the more closed the company behaves. The Indian pharmaceutical industry which has an aggressive global agenda and weak local resources is a telling illustration of how resources can be diffused in highly duplicative activities that run counter to the structural requirements of a global aspiration model. The industry is all set to replicate its chaotic and fragmented Indian market model in the global markets, eroding its own value in the bargain. A Japanese MITI kind of initiative is called for to infuse appropriate strategic and collaborative thinking among the firms in various industries in India.

Structured diligence: mutual alignment

Correct selection of the partner is an essential element of the negotiation process. Opportunistic selection of partners often leads to conflicts in negotiation processes as well as in collaboration management. There are four important phases of a diligence exercise for successful negotiation and collaboration. The first is a broad business level meeting to determine compatibility of business models, organizational culture and functional capabilities. The second is a technical evaluation of the required products and services, or their surrogates. The third is a detailed evaluation of the quality and compliance capabilities. The fourth is an evaluation of the opportunity of collaboration and the competitiveness of the firms to generate value from the collaboration model.

There are several examples in the global business scenario which demonstrate the critical importance of diligence. Roche-Genentech and Daiichi-Ranbaxy represent two distinct polarities in the pre-collaboration diligence spectrum and post-collaboration value build or value erosion as the case may be. Jet-Sahara merger in the airlines industry, Tata-Corus acquisition in the steel industry, Kingfisher-Shaw Wallace spat in the liquor industry, and HM-Isuzu collaboration in the automobile industry are but a few examples of how the level of due diligence could influence outcomes.

The negotiator: catalyst or inhibitor?

The personality of the negotiator plays a key role influencing the speed with which a negotiation can proceed and the strength which a collaboration can take shape. The demands on a negotiator are plenty. The negotiator needs to be highly competent with a complete understanding of the industry and the firm. He needs to be exceptionally communicative with an ability to listen as much as talk. And above all, he needs to be a collaborator with an outstanding ability to reinforce mutual strengths and overcome mutual weaknesses. He needs to be committed not only to the company he represents, understandably for business expansion, but also to the very process of collaboration, to inspire confidence and trust in the other party.

The negotiator when he is competent, communicative and collaborative as discussed above can be a true catalyst for the negotiation process. If he lacks any or all of the three critical factors could well be a major roadblock for the partnership. Rail track type of parallel negotiations, neither converging nor diverging or circular type of negotiations, with neither a beginning nor an end, are familiar examples of a faulty negotiating personality. An understanding of multiple cultural requirements is an additional requirement for a global negotiator. Negotiation requires openness with appropriate transparency as much as softness with adequate firmness to develop a mutually respected win-win position.

Model pitfalls: rat traps and pies in the sky

There are two clever, if not cunning, negotiation models that are employed by negotiators in negotiating with apparently weaker partners, trying to seek one-sided success; not surprisingly neither will be a sustainable success in the long term. The first is the rat trap negotiation model. In this model, the weaker partner, often requiring urgent cash consideration, is enticed into a ‘rat trap’ of excusive and perpetual collaboration which completely limits future flexibility and cash flows for the weaker partner. The characteristic feature of the rat trap model is that given the dire need for cash, just as a rat in need of food enters a rat trap, the needy partner enters a one way street of permanent collaboration. Technology sellouts without royalties, contract manufacturing sans profit shares, perpetual royalty-free licenses, circular first rights of refusals, corporate selloffs without tagalong rights, low private equity valuations in times of downturn, and technology imports without access to improvements are some examples of typical rat trap negotiations.

The second model is the pie in the sky model. This model appeals to partners who have a comfortable present but are driven by ambitions of a highly prosperous future. Aggressive and adventurous partners who are unaware of future industry evolution, and pitfalls thereof, fall for this model. Typically, in this model one partner offers for the other a highly attractive future cash flow stream in return for a nominal upfront payment. Collaborations which swap current businesses for apparently more attractive future collaborations, payment models which are not linked to success milestones, exotic valuations based on bloated business plans, royalties linked to declining businesses, payments linked to uncertain product developments and approvals, and non-competes without current business alternatives fall under the pie in the sky negotiation model. Needless to say, neither the rat trap negotiation model nor the pie in the sky negotiation model would lay the basis for a strategic collaboration; some of these could end up in tortuous litigation as well.

Collaborating to win

Strategic collaborations are equitably negotiated to bring mutual competencies into constructive play. They represent a balance of rigidity and flexibility. For example, mutual exclusivity is balanced by performance triggers for non-exclusivity. They balance risk with reward appropriately. For example, both partners need to bring in balanced resource commitments to the collaboration to be able to reap the rewards proportionately. Strategic collaborations require milestones and deliverables that are mutually agreed a priori to measure performance and undertake course corrections. And they require a governance structure, with equal senior level representation and voting rights as well as arbitration procedures to move with the times.

Strategic collaborations essentially require a three dimensional fit: strategic, cultural and operational. Well structured collaborations transform the value chains of companies, helping them to address new products and markets with optimized resources. They enhance technological depth and enhance market reach. They consolidate industry structure while preserving firm level competitiveness. The society benefits with technologically updated products with cost economics. The firms, industry and economy benefit with efficient deployment of scarce resources for consistent growth of national product. A truly collaborative mindset, with no hidden agendas and with shared missions, represents a unique managerial alchemy that can usher in multiple benefits to all the stakeholders.


Posted by Dr CB Rao on November 1, 2009