The Universal Corporation: India Inc’s Defining Goal

This blog post, the seventy-fifth post in my series of Strategy Musings, is a sequel to my earlier post titled “The Firm’s Next Frontier: The Universal Corporation” which concluded that the firm’s next frontier is a transformation into a universal corporation. This post analyses the concept of a universal corporation in terms of a strategy, structure and competency paradigm, and hypothesizes that the universal corporation is a defining goal for India Inc.

A clear practical path

It is tempting to define a universal corporation as one which manufactures virtually every product or one which is present in every territory of the globe. Apart from the fact that there is no firm that has ever attained that capability covering a total product spectrum and geographic canvas it is clear that any journey towards that goal would face not only challenging technical and economic hurdles but also insurmountable policy barriers. That said, a truly universal corporation is not an impossible option; rather, it would be a result of a journey that could span several generations that would need to be travelled by founders and chief executives with a completely open mind. Early successes in core technologies and core markets provide the competencies and cash for capable companies to cover total value chains, product-wise and/or market-wise.

There are certain Japanese and Korean corporations which come close to the concept of a universal corporation, demonstrating the feasibility of the goal. Japanese conglomerates such as Sumitomo and Mitsubishi have a formidable reputation for manufacturing anything from pins and pens to metals and medicines. Hyundai, the Korean conglomerate has the enviable reputation of manufacturing everything from chips to ships. The capabilities of such behemoths cover a whole range of technologies from electronics to automobiles, and consumer goods to industrial products. Their presence is also significantly global. Developing countries such as China and India have also been home to several diversified groups. The development of these large conglomerates has been spurred by several disconnected aspirations rather than by a planned strategy of universal coverage. Today, however, there is validity and feasibility for large conglomerates or large specialized organizations in India to pursue the strategy of a universal corporation.

Defining universality

A universal corporation is not necessarily only an integrated company or a diversified company, or even both. Neither is it a geographically dispersed company. As the previous blog considered, a universal corporation is more than a multinational corporation. To achieve conceptual integrity, a universal corporation may be defined as one which achieves total dominance in one technological domain, straddling complete product portfolio and providing global market coverage. If Sony decides that it would operate in any product that incorporates electronics and provides such range across the globe it would fit this definition; given the ubiquitous spread of electronics it is a moot question if it would ever be possible on a total basis. If Toyota decides that it would operate in every conceivable type of automobile from a two wheeler to earthmoving vehicle, serving every terrain in the world it would be a universal corporation; a journey which Toyota is entirely capable of but has not carried out because of its own volition. If Google decides that it would offer any and every product that deals with Internet, and would customize its products to all global languages Google would become a truly universal corporation; probably something a journey on which it is already set.

The concept of universality is best pursued by focusing first on a product-market dimension, and then expanding on either the technological dimension or the user dimension, or both. To take an example, one could start a foods business by opening a restaurant. Normal strategy aims at scale and scope in terms of chain of restaurants and multiple culinary tastes respectively, within the overarching umbrella of geographic coverage. Universal strategy, on the other hand, aims at leveraging the core technology of food preparation and service to extend the footprint to cover fast food restaurants, coffee cafes and tea kiosks on one hand, and processed food ingredients, processed foods and ready to have foods and beverages. Does the universal strategy militate against Porter’s concept of defining tightly the industry boundary, and developing a relevant competitive strategy? Does it also militate against Prahalad’s concept of defining core competencies in a focused manner, and building a business strategy around them? Certainly not, as universal strategy is an inevitable transformational journey in strategy formulation for a highly networked world, with multiple convergence points.

Formulating a universal strategy

Amongst all competitive strategies, formulation of universal strategy is the most challenging. Firstly, the company should have a basic critical mass to be able to enable, support and sustain a universal strategy. Secondly, the firm should be in possession of a core proprietary platform to be able to universalize itself. Thirdly, strategists should have a flair for identifying the multiple dimensions in which a firm can universalize itself and then prioritize the sequence. Taking the restaurant example given above, should the company move from restaurant to fast foods business first, and next to the processed foods, or vice versa? Or, within the processed foods side, which should come first: ingredients, foods or readymade foods? The decisions depend as much on the core competencies that are in possession of the company as on the market opportunities that become available. Many times, pursuit of parallel dimensions in one go could be an ideal strategy.

Technology determines a core competence but the manner in which it is deployed could provide a disincentive or incentive to universal growth. Without doubt Apple products are universal in appeal, backed by unique technologies of feel and function, and enablement of applications. Yet, by linking up with a personal computer and/or iTunes being mandatory and by not allowing a standard USB drive, by limiting the range to a few iconic models, and/or by ignoring certain countries in its pecking order, Apple is not really tuning itself to a universal strategy. On the other hand, Samsung which embraces multiple operating systems, including its proprietary Bada OS and developing products for multiple market cubes with value pricing is clearly set for a universal strategy. Such differences in strategy are quite understandable as universal strategy need not be the only compelling necessity for growth or profitability. However, one may appreciate that had Apple chosen to adopt a universal strategy, possibly the industry would have seen better consolidation and profitability in the overall.

Structuring a universal strategy

Universal strategy can rarely be one hundred percent organic. Though in a classic sense, structure follows strategy, in respect of a universal strategy structure is an integral part of strategy. However big a corporation or a conglomerate is, universal growth relative to the existing base is a challenge. Companies need to adopt a variety of strategies including equity owned relationships, joint ventures and franchising to expand the footprint. India has shown how simplest of ventures could achieve a national and even a global footprint by adopting appropriate structures. Apollo Hospitals, established as a Chennai based hospital in the 1970s by a physician as a business enterprise rapidly grew to become the leading corporate hospital chain of India and one of the largest healthcare groups of Asia, comprising 50 hospitals and 60 clinics, all of them largely in India, by appropriate structuring strategies. Its pharmacy chain, Apollo Pharmacy became the largest branded pharmacy chain of 740 plus round-the-clock outlets in India by adopting an aggressive franchising strategy. Innovative and aggressive corporate structuring arrangements enable companies leapfrog on the universality dimension.

Flexible structuring is based on the premise that the firm attaches greater value to achieving a universal brand presence than to absolute ownership capitalization. Flexible structuring also helps express global aspirations through local needs. As the firm gets universal, supply chain becomes simplified. It is, for example, inefficient for Marks & Spencer to market in its Indian stores garments designed in Sao Paulo, Brazil and stitched in Honduras when capable garment manufacturers of Tirupur in India can produce to a fusion of national tastes and global designs. Universal strategy which is based on leveraged structures builds speed and efficiency in localization.

Universalizing through local competencies

A review of the relatively more global corporations throws light on core competencies required for a universal corporation. An understanding of local needs and development of designs to suit such local requirements is a key factor for an MNC to emerge as a universal corporation. Japanese automobile companies have been successful in India because they have been able to appreciate the need for high ground clearance, short turning radius and large seating capacity and develop suitable designs. Having introduced products meeting the needs of multiple user cubes, developed a keen understanding of the tough operating conditions and appreciated the increasingly discerning selection criteria of users, the Japanese automobile users have started trending designs and manufacturing products exclusively for, out of India (Toyota Etios car, for example). GE has developed medical devices for India, and for other low cost countries out of India. As a universal corporation integrates local competencies, hybrid technologies develop at a faster clip.

An ability to express global capabilities through localization is a fundamental platform on which a typical MNC and a futuristic universal corporation differentiate themselves. The former would place a premium on global standardization in form and components as well as in overt and latent characteristics. The latter would keep the key drivers of excellence non-negotiable but be keen to enhance performance through local creative practices. Carlos Ghosn, the CEO of Renault-Nissan stated while inaugurating the Chennai plant of Nissan in 2010 that he chose to enter into Indian manufacture not because of labor cost arbitrage but because of the ability of Indian production engineers to design and establish facilities at costs that are fractional to the developed world costs. Japanese automobile makers found India’s ability to find economics in small batch manufacture to be synergistic to their own approach of lean manufacture (Indianized Toyota Production System, for example). The universal corporation bets naturally on hybrid state-of-the-art for its versatility and effectiveness.

Barriers and bridges

Any, or all, of the Fortune 1000 global corporations could have become universal corporations. Several of them, in reality, have not even become multinational. The reasons relate to the barriers that exist in cross-border evolution of companies, some of them external and some internal. Homogeneity of culture, market, skills and common law make it easy for a company to scale up in one country while heterogeneity of the very same factors make it difficult for firms to seek cross-border growth. The challenge is also one of dealing with multiple host country governments, each with its own plethora of complex laws and investment regulations. Internally, lack of a managerial bandwidth to cope with the multiple challenges of cross-border growth is a major self-constraining barrier. However, firms which have explored cross-border operations early have been at home as much as local companies themselves. Several fast moving consumer goods (FMCG) companies such as Unilever, Colgate, Nestle, Proctor & Gamble have discovered this decades ago. The balance Fortune 1000 companies who saw barriers where opportunities beckoned continue to remain anchored in flat, mature developed country markets. For several such companies, inability to foresee future competition from developing nations, unwillingness to dilute corporate policies to suit local laws, diffidence to localize to achieve competitiveness, and reluctance to share management with local partners have been great barriers to cross-border exploration.

It has taken a complete meltdown in developed economies and a visible climb up in developing economies for some of the Fortune 1000 companies to reassess their strategies. The bridges to developing economies clearly are local professionals, who are today as well qualified and experienced as the MNC professionals, and local corporations, which have today achieved requisite local scale and brand power. While Wal-Mart has been a slow collaborator with Bharti in the retail space, Pizza Hut has scored fast fame in the fast foods domain in collaboration with Jubilant Food Works, with Dunkin Donuts in tow to repeat the successful experiment. Starbucks’s recent collaboration with Tata Coffee is another example of complementary capabilities being harnessed for cross-border growth. The bridges such as these, however, require dismantling of barriers and delineation of opportunities in the backdrop of right perspectives, in the collaborating companies. Developing countries require massive investments in infrastructure, energy, education and healthcare. Fortune 1000 companies which see value in participating in this space will reap superior returns in future if they attempt to evolve as universal companies. However, there is no discernable evidence that more firms have appreciated the broader value of transforming themselves into universal corporations. Such continued hesitancy provides a great opportunity for aggressive Indian companies and conglomerates to be proactive.

Indian universal corporations?

The 2000s have seen a few Indian companies and conglomerates taking measured steps to acquire overseas brands, assets and companies, with partial or full equity ownership to emerge as Indian MNCs in their own right. Over the last ten years, India’s companies have made overseas acquisitions worth nearly USD 70 billion. Tata Group’s acquisition of Tetley tea, Corus steel and Jaguar-Land Rover assets, Bharti’s acquisition of Zain group’s telecom operations, Vijay Mallya’s snapping up of White and Mackay and Taiitinger spirits, Hindalco’s acquisition of Novelis, and moves by Indian oil and steel companies to secure oil and coke resources are but a few examples. Certain non-resident Indian groups, on the other hand, won abroad prior to entering India. Hinduja Group carried out flourishing international trade and global financial investment and banking services for decades before it made their first major investments in India in the 1980s. Laxmi Mittal’s Arcelor-Mittal, the world's largest steelmaker, has been a truly global powerhouse with only a marginal presence in India.

With the slowdown in mature economies and consequent availability of value buys on one hand, and the openness of other emerging economies to welcome overseas partnerships, even from other leading emerging nations such as India and China, India has a great opportunity to go beyond mimicking the MNC strategies. By adopting a whole new strategy aimed at universal growth, creating innovative structures to extend Indian corporate presence, developing a core competency of competitive collaboration, and building value propositions across product lines in a universal manner, Indian corporations can become truly universal. Tata Motors is a defining icon for universality in technological value chain (from Nano micro car to Jaguar luxury car, from Sumo SUV to Land Rover SUV and from 2 tonne Ace LCV to 60 tonne HCV) and in geographical value chain (with the largest automotive base covering cars and commercial vehicles in India, and its ownership of JLR luxury car assets in the UK and Daewoo heavy vehicle assets in Korea as well as exports to most countries). There is no reason why a whole multitude of Indian companies and conglomerates cannot become universal corporations sooner than later.

Posted by Dr CB Rao on February 28, 2011.

The Firm’s Next Frontier: The Universal Corporation?

There is no evidence in industrial chronology as to when the first firm came into being in this world. It may, however, be hypothesized that the concept of the firm got established when the first trade took place in the world, probably simultaneous with the origin of human being. The firm as an institution got rooted in different countries and communities as the concept of capitalism got ingrained in the human mind (probably from 1300 AD). Capitalism being creation of more wealth from available wealth, human beings found the need for collaborate as well as compete to gain access for resources, convert the resources into products and/or services and sell them. In this process, the firm emerged as the appropriate forum to conduct all such activities. There is, however, enough evidence when the first joint stock company was established in the world (Muscovy Company in Britain, circa 1555) and when the first international venture originated (East India Company of Britain, circa 1600). The Dutch East India Company was probably an earlier multinational corporation in the world, but it was the East India Company of Britain that was aggressively multinational, also gaining infamy as the Trojan Horse that brought the British conquest of India. Today’s firm has, of course, come a long, long way from the historical version of the firm. Keeping that in view, we also need to conceptualize how the firm of the future would look like. India, like China, offers an excellent backdrop to analyze the past evolution and forecast the future transformation of the firm.

MNCs in India, and of India

Over the centuries, the firm has taken various hues. From a strictly own country boundary to export to other countries had been the first evolution for the firm. An export-oriented firm thus took shape. In due course, the multinational firm took shape as the firm started having headquarters and/or principal manufacturing complex in one country, mostly a developed country, and having production and/or sales in different countries, mostly developing nations. Also called transnational corporation, the multinational corporation (MNC) has been a major feature of industrial development in the whole of the twentieth century. The growth of MNCs has been like the flow of water; from developed economies to less developed economies, from high technology countries to low technology countries, and from saturated markets to virgin markets. Market and structural imperfections such as differentials in skill levels, access to resources, policy inducements, local partnerships, and tax treatments provided additional impetus to the growth of the MNCs. Typically the need of the host country for the MNCs proprietary technology and the need of the MNC for new markets provided a platform of quid pro quo for such development. The journey for the MNCs has rarely been smooth however across the world, more so in less developed countries. India offers an educative case example.

The growth of the MNCs during 1950s to 1990s in India has been marked by both pragmatic and dogmatic considerations. Industrial evolution in the pre-independence India had to bear the bias of foreign occupation. Industrial development in the post-independence followed a very distinct model governed by the socialistic dogmas of the successive governments. All technology and investment-intensive industries were, by and large, reserved for the government owned enterprises, called public sector undertakings (PSUs). PSUs typically grew based on technical collaborations with engineering and technology majors from advanced countries without any equity investments. However, the areas that the successive governments considered non-strategic were left open for MNCs to enter India as branch offices, listed companies, joint ventures and in exceptional cases as wholly owned enterprises. Almost all aspects of MNC enterprise operations were closely monitored and controlled while in some cases either takeover by the government (nationalization) as in the case of Shell, Exon or Caltex or demands for alignment with public policy made certain MNCs in a few sectors disappear from India (for eg., Coca Cola and IBM). Until economic liberalization of the 1990s and beyond, most MNCs stayed on as bystanders than as active participants of economic development. The liberalization of economic policy and dismantling of licensing has seen a host of MNCs reenter India in 1900s and 2000s to benefit not only from India’s huge market base that could absorb MNC products and services but also from India’s educated workforce which could provide cost-competitive software and manufacturing solutions.

As one reviews the tryst between India and the MNCs, the need for public policy and private initiative to be aligned with each other becomes clear. Clearly, the MNCs in the initial days of Indian independence were reluctant to offer any more than low technology items (eg., oils and soaps) or dated technologies in otherwise high technology industries (eg., automobiles and electronics). MNCs in certain sectors such as pharmaceuticals were totally reluctant to participate in India due to lack of patent protection. The government, on its part, was perhaps justified in insisting that the MNCs should do better than offering cigarettes and aerated beverages to India. The government, in addition, had its own strange diffidence towards the Indian private sector, which could have been the natural ally for the MNCs in India on a much larger spectrum. Today, the history of India’s industrial development, despite the warp, offers two lessons: firstly, Indian government’s protectionist policies have given strength to a fledgling indigenous private sector (as was the case with several other emerging economies) as well as established a robust public sector, operating in technology and investment intensive sectors (a feature unique to India). Secondly, market imperfections being what they are, the market and the MNCs had to find workarounds to facilitate MNC growth in India. From re-jigging product and manufacturing strategies through a national lens (for eg., Lever and Colgate) to collaborating on a low-risk technical collaboration and minority equity route (for eg., auto components) MNCs and India had been moderately successful in retaining a relationship if not a tryst. As MNCs and a host of rapidly developing economies, including India and China, view the future the question to ask is whether the MNC as seen today would morph into a new avatar!

MNCs and societies under transformation

Some scholars believe that rapid economic growth around the world has reduced market imperfections, and as a result the MNCs and the nations now face a climate of mutual trust and dependency, in the background of market maturity. Some others believe that most MNCs are already becoming global corporations in the sense that the research, manufacturing and commercial operations are more widely dispersed across several countries than ever. They also believe that the sheer need for investible resources from the MNCs would keep the nations on the path of pragmatism. Both the schools inevitably come to the conclusion that the emergence of a global corporation, already underway, would make the classic MNC an even more relevant institution for the future. While these views have their merit, the fact is that both MNCs and societies are under such transformation that even the concept of a global corporation would fall short of the transformational change that would dictate new trends. There are two market and skill related facets of the transformation that the MNCs and nations must take note of even as they participate in the transformation, by design or default.

Markets as 3D Matrices

Just how effective the firm would in future be would in turn be dependent on how the firm is aligned to the markets, and how well the skills are aligned to the needs so that the firm could develop the products the markets would need. Hitherto, it has been assumed that the MNCs by virtue of their scale, scope and technologies are well positioned to address the needs of the markets and access the skills well. In doing so, it is also assumed that the markets can be segmented to accept products at different points, essentially specification-price driven, often depending on the purchasing power of economies and their citizens while countries and skills can be uniquely identified with each other to arrive at the most efficient means of development and manufacture. This finely honed model of the MNC, it is felt by them, would meet all foreseeable needs for the future. The classic MNC model, which ordains that certain economies need only certain types of products misses out the crucial point that more than the corporation, the consumer is global today. The citizen as the consumer has, in fact, transformed more than the citizen as the producer. This has important implications as below.

With information display and information flow reaching new highs through the Internet and all of global media systems the consumer is exposed to multiple technologies and functionalities. The consumer no longer views product differentiation merely in terms of a few features or price levels. Neither is the consumer interested in receiving products with generational lag depending on the development status of the country he or she belongs to. Under the transformation currently underway, the traditional one-dimensional layering of the market or two-dimensional market segmentation is yielding place to a more sophisticated three dimensional market cubing, the key dimensions being technological feel, functional performance and value pricing, irrespective of the development status of the country. These three dimensions are of transformational impact. Technological feel is the tactile, sensual and emotional experience that a device or equipment provides. Functional performance is the efficiency and effectiveness with which the device or equipment meets the performance needs of different market cubes. Value pricing is cost competitiveness enhanced by perceived superior value of the product in its market cube.

The corporation of tomorrow has to therefore develop a broad range of products, satisfying all of the market cubes, if it needs to achieve scale. The corporation has to master the ability to first start with the best of the three dimensions, and then downsize or vary the dimensions to meet various market cubes. This approach is antithetical to the wisdom that new products should be introduced at the lower end first to get as large a market toehold as possible and then upgrade to cover higher grounds. The transformation of the consumer from a price-sensitive persona to a value-conscious personality drives this need to stay at the top of the three dimensional axis. This hypothesis also upturns the established notion that different countries could be seen on the three dimensions of technology, performance and value depending on stage of their economic and social development. Nike, Rolex and iPhone are today seen as much in any interior habitat of Asia and Africa as they are seen in the upscale neighborhoods of New York Manhattan and Tokyo Ginza. The corporation of tomorrow has no option other than transform itself into a universal marketer, and consequently a universal developer and manufacturer as well.

Equilibrium of skills

A world leader implied in a recent exhortation to the developed industry that technology should flow to where markets are, and production should occur right in the midst of such needy markets. This, he argued, would create more jobs in developed countries as well, because as core technologies and components would continue to be developed out of developed countries. This, in fact, has been the theory and practice of the classic MNC. Unfortunately, the universalized market structure no longer deems the classic MNC model to be adequate. Sophisticated designs and products would need to be made in as many countries as possible to achieve universal appeal with country-specific value pricing. Fortune at the bottom of the pyramid applies to countries in economic pyramid as much as to economic strata in each country. This again requires as much universalized development and production across the globe as possible. There is a concomitant need therefore for several countries to ensure the availability of leading skills as an essential requirement for supporting universal production.

Not many would still endorse the proposition that there could eventually be better skill-sets emerging out of developing nations, leading eventually to equilibrium of skills across nations, developed and developing. That is probably a myopic view. None had, for example, hypothesized two decades ago that India would have leading edge automobile design and manufacturing skills. The fact, however, is that India over these two decades not only commenced design and manufacture of vehicles indigenously but could also create the world’s smallest but spacious Nano car as an innovative first in the world. Two decades into the future it is quite conceivable that India could be a hub of global innovation and manufacture in a wide range of industries, developing products truly for the first time in the world. Similar could be the opportunity for other innovation-aspiring countries. Technological leapfrogging could occur in respect of select rapidly developing countries on a much larger scale in future.

The essential requirement for the transformation would, however, be the availability of requisite intellectual capital in universities, laboratories and industries. Here again, the view could be that India or any other developing country would never reach the intellectual level of advanced countries, given the fact that thousands of Indian graduates still flock to the US universities for higher order education and research. That again would be a myopic view. There are clearly two waves of educational transformation sweeping India and China, whether or not attributable to tiger parents in these countries. The only inhibitor to a total global domination by the educational value chain of these two countries relates to certain major disconnects.

For example, aggressive private sector investments in secondary schooling have led to mathematical and scientific brilliance at school finishing levels in India. This is taken forward at graduation level by the Indian Institutes of Technology and Indian Institutes of Management which are among the top institutions globally already on their own. However, major failure in high quality primary education at the lower end, and significant inadequacies in cutting edge research in sunrise sectors are two major disconnects that constrains the educational value chain of these countries. As these countries recognize the need for fundamental investments in education at both the ends of the spectrum, the capabilities of their educational systems would increase manifold. Also, as more educational institutions and laboratories become multinational the intellectual transformation would be stoked further by their participation in the rapidly developing economies. In addition, the corporation that desires to cater to all the multidimensional cubes of the markets across the world has to make special efforts to advance the skill levels in the host countries. As skill levels reach equilibrium the intellectual markets would turn perfect providing flexibility to adopt multiple modes of development and manufacture in multiple countries.

The universal corporation

The age of the universal corporation is ready to dawn, primed by growth of new age economies such as India and China and the consequent diversification in development, manufacturing and marketing bases across the world. As customers become well informed and highly discerning, apparently homogenous markets would support heterogeneous products and services. The classic concept of a multinational corporation headquartered in an advanced country and having manufacturing bases in low cost countries, and accepting generations of products, and their manufacturing lines, sequentially would be a thing of the past in the next decade or two. The concept of a universal corporation which constantly seeks value arbitrage rather than mere cost arbitrage would simultaneously take root. The scale and scope of the markets in the rapidly developing economies combined with the accumulating and unstoppable intellectual power of youthful demographics in such economies would make the universal corporation a reality. What would be the strategies, structures and competencies of such universal corporations is, of course, a distinct area of research by itself.

Posted by Dr CB Rao on February 25, 2011

Strategic Comparators and Responders: Reinventing Strategy Formulation

The most relevant but most ignored fact of corporate strategy is that competitive strategy can rarely be drawn up in isolation. In any industry, the strategies pursued by individual firms impact not only the industry structure but also affect the competitive strategies of all other constituent firms of the industry. Yet, firms and strategy leaders find it expedient to draw up strategies as though only they exist in the industry individually. It is not uncommon, for example, to see almost all firms in an industry aspiring to achieve growth rates above the industry average, move up the industry pecking order by a few notches, achieve the largest market share or secure the highest profitability. No wonder therefore that only a few firms succeed in achieving their operational aspirations and most land up with randomly unsuccessful and patchily successful performance.

Given that corporate strategy in a firm is typically drawn up at the level of the chief executive officer, chief strategy officer, chief financial officer and other CXOs all with requisite capabilities, the ostrich like manner in which corporate strategy is drawn up defies logic. The reasons are often three pronged: structural, systemic and behavioral. Strategy is a highly complex intellectual activity which integrates established data as much as it factors in uncertain aspirations. The larger the organization the greater is the need for inclusivity, calling for ground level strategy development in all functions, domains and regions, with a sharp eye for internal and external factors. Yet, typically the strategy department is usually the smallest one in a firm, denying structurally the ability to capture all the required nuances and details, and conduct necessary sophisticated analyses.

Systemically, industrial managers and leaders, despite the strong managerial learning that emphasizes coping with uncertainty with a wide range of tools, get inclined to accept quantitative data rather than qualitative information or interpretations. Behaviorally, professionals involved in strategy development tend to believe that strategy formulation is an esoteric science which only strategy specialists can carry out. This factor and the distance strategists tend to create between themselves and other organizational members act as behavior barriers between ground level realities and capabilities of the broader organization and the senior level aspirations and potentialities. These factors, and lack of quality external data or the cost and time required to access such data, act as systemic deterrents to developing a comprehensive strategic canvas and achieving organizational inclusivity in strategy formulation.

Pitfalls of introverted strategy

Every strategist maintains that his or her strategic plan is developed based on opportunities and risks inherent in the economic environment and the likely moves of competitors. Apart from the fact that such claims are often no more than armchair predictions, the benefits of any strategic plan disappear the moment the first year of the strategic plan is converted into the monthly budget for the firm. This is because thereafter the firm keeps monitoring its performance against the budget rather than external developments or competitor achievements. As a result, the firm misses out the opportunity to overcome new challenges or spot new opportunities. As economic environment becomes more volatile and competitive dynamics become more intense by the day, there is every need for all professionals who treat strategy as an exclusive preserve to look at a more pervasive and expansive approach to strategy formulation.

A classic instance of the introverted strategy is found in certain recent developments in the top crust of the Indian information technology industry. One of the top IT players was preoccupied with implementing strategies developed at the beginning of economic downturn and was oblivious to the moves being made by other top players to build capacities as global economy began to come out of woods. As a result, the firm lost the edge in terms of consulting capacity and customer access, and got relegated to a lower spot. An inability to assess, or accept, the superiority of other more effective mobile operating systems and a belief in its own proprietary system made a leading global mobile maker such as Nokia lose the edge in smart phones. Several Indian pharmaceutical majors who have ignored the plans of late starters to aggressively establish capacities or create marketing organizations saw their market share drop precipitously.

Certainly, directional stability for business and performance comparison vis-a-vis plans are extremely important for firms to stay focused. Given that most strategic investments such as capacity creation have lead times of several years and even tactical operations such as inventory management involve lead times in months it is impractical to have continuously dynamic plans, even if they are responsive to external developments. That said, given the fundamental responsibility of strategy formulators of delivering sustainable growth for the firm, innovative ways must be found to balance internal stability and external volatility. Ease of making internally focused plans and difficulty of compiling reliable external information or lack of organization to support external intelligence should be the least of the reasons to stay only inward focused, and in the process oblivious of external developments. The wise firm must institutionalize a process of strategic comparison and responsiveness as a strategic management ethic.

Key external themes

The theory of strategic comparators and responders herein proposed is quite different from the existing concepts of competitive benchmarking or strategy development. Competitive benchmarking essentially focuses on metrics that are measurable and are reflective of operational and market performance. These could be market share, published financials and stock price. The paradigm of strategic comparators and responders includes external benchmarking but goes beyond that into a holistic reinvention of the art and science of strategy formulation. It is based on the premise that operational metrics or cross-sectional snapshots of a firm or its competitors do not necessarily capture the longitudinal impact or potential of external developments and potential external-internal (dis)equilibrium. Further to that, simple benchmarks fail to project the transformational trends that could potentially rewrite the comparative attractiveness of economies and competitive positioning of firms. Prediction of transformational phenomena requires superior analysis and judgment on the part of strategy formulators, and CSOs. For example, when the concept of Brazil-Russia-India-China (BRIC) economies as the rapid growth economies of the future was propounded a few years ago there were not many takers; it became, however, a reality sooner than forecast. Firms which embraced the BRIC concept early on benefitted from the rapid and transformational economic growth of such countries.

Strategic comparators emerge as both metrics and scenarios. Strategic responders are strategies that reset the firm’s strategy in response to the strategic comparators. The theory uses metrics as a means to predict future based on statistical sciences and experiential judgments, given the complexity. Essentially, comparators occur at four levels over the two dimensions of economy and industry: macro-economic, micro-economic, macro-industrial and micro-industrial. Taking the example of India, current macro-economic trends and social aspirations indicate the potential for a major transformation in terms of becoming the third largest economy in ten to fifteen years, with greater rural inclusivity. At a micro-economic level, changing demographics which would lead to around sixty percent of population being of thirty years of age or below portend a major transformation in consumption patterns. From a macro-industrial perspective, new industrial sectors catering to children and youth could be the new drivers of industrial growth. At micro-industrial level, firm and industry specific competencies honed in industries such as automobiles, pharmaceuticals, information technology, engineering, communication, defence and electronics could become factors of national comparative advantage. Any strategic planning process must, therefore, address the economic-industrial scenario.

The practice of strategic planning in the 1960s and 1970s advocated analysis of economic and technological environment as a primary component of the long range planning process. Firms felt that it was important to have economic analysts, including econometricians, in the long range planning departments. However, the slow rates of change in external environment of yesteryears caused such analytics appear as a redundant, non-value adding exercise over time. Not surprisingly, strategists and CEOs began to focus more on firm-specific internal factors than on external factors, a trend which got fortified over the 1980s to 2000s. CK Prahalad’s concept of core competencies of the firm reinforced the trend. Although Michael Porter focused on micro-industrial environment as an influence over competitive strategy, his prescription also focused on firm level competencies. With the tumultuous changes in global economic environment, emergence of rapidly developing economies such as China and India and exponential growth in new technologies, an understanding and forecasting of external economic and technological drivers, together with a more nimble and perceptive strategic response mechanism, assumes great importance for strategists.

Connecting the dots faster

In the emerging world, uncertainty is the only certainty and volatility is the only steady factor! The emerging environment does not lend itself to classic statistical and technical analyses of the past to arrive at the future. The scale and flow of business has enhanced globally to such an extent that for the first time in the 2000s, the fallibility of large individual firms could put to risk whole economies. Strategy formulators are now expected to marshal intuition, experience and analytics in equal measure to develop judgments on future. The CXOs who seek comfort of pure analytics, therefore, are unlikely to take their firms far; neither would be the CXOs who are solely intuitive or biased by their own experiences. Emerging economies could throw up new points of inflexion unexpectedly. As an example, even in the matter of air transportation where sectors are subject to rigid governmental controls, and hence apparently predictable, the trio of Emirates, Etihad and Qatar airlines have grown so much over the last five years that they can today, in the aggregate, claim more air passenger kilometers than the largest established carriers such as Lufthansa or British Airways can claim. If the CEOs of the established airlines tried to forecast future scenarios through yearly measurement of air kilometers they would have been off the mark as well as late to respond.

Strategy formulators in the new era need to not only understand the dots that could lead them to the future but also learn to connect them faster. Not many overseas firms perhaps predicted that China would make massive investments for super fast bullet trains and therefore let the initiative slip away into indigenous development of such trains by China (good for China of course). Not many advanced nations and their national firms predicted that India would double its growth rate to 8 plus per annum and consequently missed the opportunity to participate in the growth and even accelerate it. Japan, and Japanese firms, for example, had been so close to, yet so far from, India; they could not foresee that India could be one of the largest markets and production centers for automobiles, electronic and consumer goods. Even today, despite this experience, many countries and national firms are still unwilling to visualize that India is at the cusp of a new qualitative revolution, taking the growth to a new trajectory. Similarly, Indian government and the firms as well as financial institutions do not seem to realize that India can acquire overseas assets much more expansively and decisively than it has done so far.

From the behavior of nations, societies, governments and economies to the aspirations of firms and professionals, the external world presents innumerable indicators of a transformational future; and there could be diverse futures relevant for different firms. CXOs must have the perspicacity and capability to see the futures beyond the obvious through multiple lenses. Before mild ripples of change turn into huge waves of transformation, firms would have only small windows of time to retool their strategies and redirect their execution. Unidirectional companies obviously face greater challenges on this front, the saving grace being that growth economies do offer base line growth in all sectors while offering hyper growth in select sectors. Conglomerates have greater flexibility to capture opportunities across the economy. However, whether specialized or diversified, companies need to reintroduce economic, demographic, technological and social forecasting to meet future challenges and opportunities as well as appropriate mechanisms to respond to them. This external orientation requires a major transformation in how budgets and strategic plans are formulated in firms.

Strategic simulations and strategic budgets

Firms would need to reconfigure the strategic planning and budgeting processes by a two-way equilibration. On one hand, the strategic plans should be unburdened of the needless quantitative load while on the other certain foundational strategic elements should be introduced in the budgeting processes. To enable this, strategic plans while being retained on a five year rolling basis must be developed in terms of multiple scenarios rather than with singular quantitative precision. Simultaneously, the annual budgeting cycle would need to be extended into a rolling two year span to provide the potential to cover strategic programs from investment to commercialization cycle. This twin change would enable companies to be prepared for dynamic changes in environment. A two year strategic budgeting cycle, though unusual in the current corporate practice for the extended span, would be the right transformation for operating executives to view their programs with the right strategic perspective. A five year scenario-driven strategic plan, though also could be unusual for absence of quantitative rigor, would enable strategic readability and flexibility for firms.

The strategic budgeting process would provide ample potential to understand fledgling strategic directions of the incumbent firms in an industry. The company annual reports, especially in India, provide a wealth of information on physical and financial parameters and investment indices, apart from standard information relating to balance sheet, income statement, cash flow statement and asset schedule. Some of these include information on underlying strategic parameters such as licensed capacities, installed capacities, production, sales, imports, exports, consumption of materials, inventories, energy consumption, technology imports, R&D investments, indigenization efforts, senior managerial remuneration etc. Most information is also made available on segmental or product basis. The information pool enables strategists to quantify and judge trends relating to a number of strategic parameters such as product specialization, export orientation, import dependence, asset intensity, research commitment, energy efficiency, import substitution, financial prudence, operational excellence and so on. Strategic budgets, by integrating such quantitative strategic parameters in bi-annual planning processes, equip the larger organization to deliver operations in line with the corporation’s strategic intent.

The strategic simulations would, on the other hand, develop multiple scenarios of likely external environment, competitor moves and potential strategic fit between the firm and any of the scenarios. As discussed earlier the economic and industrial environments can be simulated in a 2X2 matrix of macro and micro levels. Each environmental facet can be, in turn, assessed on a 3X3 matrix of interplay of optimistic, likely and pessimistic economic opportunity scenarios on one hand and dominating, co-existing and declining competitor dynamics on the other, a firm would have thirty six scenarios in which it can play its act. Assuming again that the firm chooses to play by an aggressive, middle of the road or conservative competitive strategy there would be a total of one hundred eight scenarios that could develop for the firm. The ability of the firm to deep-dive into each of the primal scenarios of opportunity, competition and competitive strategy in terms of various causative triggers could lead to even more intense scenario build-up. Economic opportunity even in one scenario, say optimistic, could be characterized by different levels of national savings, inflation and foreign direct investment; or by different rates of growth in agricultural, industrial and service sectors, for example. Competitor actions, say could be characterized by different levels of cash generation, cash deployment and external financing; or different levels of emphasis in core domains of research, manufacturing and marketing. A firm in each of its competitive strategies could seek out a cost position, differentiated position or niche position. The possibilities are endless; therefore the new age firm would need a new way of organizing the strategic planning function in a more intellectually reinforced way.

A new paradigm of strategic planning

To be able to meet the new age challenges of internally competent and externally sensitive strategic planning, strategic planning departments need to be expanded and restructured into three clear specializations. The first specialization stream would be driven by economists and technologists best equipped to forecast economic and technological scenarios. The second specialization stream would focus relentlessly on competitive intelligence to identify strategies and execution plans of competitors. The third specialization would be internally driven, analyzing the firm’s strengths and weaknesses, and developing the firm’s strategic options to achieve a fit with the multiple economic and technological scenarios. The chief strategy officer would not only be an erudite synthesizer of the enormous amount of information thus generated but also be an outstanding collaborator of multiple specialists to arrive at the most plausible set of strategic comparators and the most feasible set of competitive strategies. The holistic strategic planning process identifies drivers of competitive strategy, in an eclectic combination of various theories of strategy gurus, from Drucker, Ansoff and Ohmae to Prahalad, Porter and Kaplan, just to quote a few. The new age chief strategy officer must accordingly be a professional par excellence who can pioneer and institutionalize the new paradigm of strategic comparators and responders in the firm.

Posted by Dr CB Rao on February 19, 2011

Enigma of Entrepreneurial Energy: Defying the Laws of Entropy?

Given my association at senior levels with entrepreneurs and entrepreneurial organizations, I am often asked the question “who is an entrepreneur”. Often, my answer has been that an entrepreneur is one who creates something out of nothing. I however realize fully that such a simplistic definition hardly does justice to what makes an entrepreneur or what an entrepreneur makes for the society or economy. Clearly, an entrepreneur creates wealth with his products and/or services that are innovative, exciting, outstanding or novel, that are developed, manufactured or delivered with very lean start-up resources, amounting to nothing more than his or her ideas and some savings. It is this unique characteristic that positions entrepreneurs in a class of their own, relative to common citizens, professional managers, governmental administrators, industrial leaders and academic scholars.

Much has been written about the skills, capabilities and attributes that characterize entrepreneurs. Two critical attributes of long standing entrepreneurs are irrepressible passion and boundless energy. Passion to achieve goals of distinction and energy that drives all actions towards the goals shape entrepreneurs into what they are. Mostly however it is the entrepreneurial passion that is spoken of and entrepreneurial energy rarely finds mention. If passion is the spark, energy is the fuel for entrepreneurial ventures. As automotive and chemical engineers are aware certain fuels and chemicals can spark themselves into high energy combustion by themselves under high pressures and a spark by itself can ignite only ignitable fuels or chemicals. Passion dims without energy, which possibly explains why entrepreneurs, as they mature, fail to translate their continued passion into sparkling ventures as they once could do.

Entrepreneurs have great expectations of themselves and their organizations. They expect their organizations to clone them in terms of passion and energy. In doing so, they ignore the differences between passion and energy on one hand, and themselves and their organizations on the other. Passion is akin to motivation while energy is very much the motive power. It is possible for individuals to be energetic but not necessarily passionate, and vice versa. Passion provides the aspiration but energy leads one to achievement. Bereft of passion, sheer energy can drive results provided the entrepreneur sets a goal model. In sum, the energy quotient of the entrepreneurial system rather than its passion equation drives the growth and sustainability of an entrepreneurial organization.

Entrepreneurial potential and paradox


Entrepreneurship is full of potential and paradox. Nations are made competitive by entrepreneurship. New ventures are established and additional jobs are created by entrepreneurs who eschew traditional jobs and push the envelope with their passion and energy. Sunrise sectors in advanced markets and growth sectors in emerging markets offer full potential for entrepreneurial play. Product innovation, manufacturing efficiency, and delivery excellence, either singly or in combination, help an entrepreneurial venture to succeed. Clearly, as a global economic system the full entrepreneurial potential is not yet tapped because advanced countries are unable to spark entrepreneurship in mature sectors while emerging countries have no roadmap for creating crucibles of entrepreneurship in sunrise sectors. While the high cost advanced countries may never be able to reenact entrepreneurial play in mature and commoditized sectors emerging markets have all the potential for broad based entrepreneurial play in sunrise sectors. To achieve this potential two paradoxes of entrepreneurship must be well understood and squarely addressed.

The first paradox is that entrepreneurship tends to be inversely proportional to scale. The faster and bigger an entrepreneurial enterprise becomes the lighter its entrepreneurial passion becomes and the colder its entrepreneurial fire becomes. From Microsoft to Google and from Sony to Ford, industrial history has several case examples of scale diluting entrepreneurship. There are several reasons for it. As entrepreneurs create industries out of their ventures they also attract follow-on entrepreneurs and competitors. As they grow organizationally, entrepreneurs integrate more managers than entrepreneurs in their organizational eco-systems and consequently become more deliberative and administrative in nature than intuitive and impulsive. Start-up entrepreneurship has more of goal directed execution and less of strategy driven execution while scale-sufficient entrepreneur firms become more process-dependent and less goal-inspired. Retaining entrepreneurial culture as an entrepreneurial firm grows is a daunting challenge for the entrepreneur.

The second paradox is that entrepreneurship is rarely linear. If the information technology leader of India, with a start-up investment of USD 10,000 in 1990 by its founders could become a USD 5 billion enterprise by 2010, with a net profit percentage of 27, cash and equivalents ratio of 70 percent and fund raising capability of say another 5 billion it does not mean that the firm can automatically grow to a USD 100 billion enterprise by 2020. The reason is that entrepreneurial organizations as they grow become stymied by the growth boundaries of the industries and their markets. Neither arithmetic nor geometric progression in entrepreneurship would be feasible in entrepreneurial organizations unless entrepreneurs overcome the constraints of scale sensitivity outlined above and pursue out-of-the approaches to achieve market hegemony. The challenge of achieving exponential growth would be next to impossible, however, passionate an entrepreneur is, and competent his organization is.

Limits to growth, ebbing passion or eroding energy?

Not enough research has been conducted as to why fiery entrepreneurs who created rapid growth organizations out of next to nothing fail to replicate their entrepreneurial magic proportionately either in scale or scope. While the above hypotheses offer several plausible explanations, possibly there could be other reasons as well. A natural inclination to seek a better work-life balance, a satiation of capitalistic thrust that triggers entrepreneurial urge, a failure to get synergistic technology or business partners, a changing macro-economic environment or a desire to self-actualize in areas other than corporate or industrial development could be some other reasons. Whatever be the reason, entrepreneurs in aspiration-driven and potential-plenty emerging markets should not forget that they are instruments of national wealth creation, and the nation cannot become a superpower unless the entrepreneurial fervor is personally maintained and/or is strongly institutionalized. There exist two ways to achieve this.

Entrepreneurs who are intent on retaining the individual charisma of entrepreneurship have few options other than becoming serial entrepreneurs. Successful serial entrepreneurs bring up their firms to critical scale and leave them in the hands of larger investors or partners, unlocking value and cashing out the stake, generating larger corpuses for subsequent ventures. This strategy is particularly relevant when their core entrepreneurial capabilities are not industry or technology specific or when the industry itself is on a mode of continuous expansion. India has its shining examples of serial entrepreneurs, for example Jerry Rao, the former Citi India head who set up Mphasis and is now in the fourth act of being a champion of affordable housing,GR Gopinath who founded India’s trail-blazing low cost airliner, Air Deccan and is now the creator of Deccan Express Logistics, and K Ganesh who recently sold his stake in his online educational venture, TutorVista, following three other exits in the past. That said, serial entrepreneurship is unlikely to be a major phenomenon in the Indian entrepreneurial scene which is marked as much by emotive attachment as by growth passion.

The second sustainable approach for institutionalizing entrepreneurial fervor lies in morphing firms into conglomerates. This unique method of institutionalization of Indian entrepreneurial spirit is best evidenced by Tata, Birla, Bajaj, Reliance, Essar, Dhoot, TVS, Murugappa, Apollo, and various other individual or family entrepreneurial ventures which became major conglomerates. From a simple strategic business unit (SBU) approach at the firm level to a diversified conglomerate group approach, there could be enormous opportunities for fervent entrepreneurs to co-opt other capable entrepreneurs to let them start up and grow such SBUs and constituents firms as future conglomerates. Institutionalization of this approach needs a breed of professionals who are fired with entrepreneurial passion and energy as much as individual entrepreneurs are. As one dwells on this approach, it is enigmatic as to why conglomerate entrepreneurship has been a preserve of entrepreneurial families rather than individual entrepreneurs. There is a need for conceptualizing and analyzing the entrepreneurial paradigm in a totally different perspective that emphasizes energy rather than passion as the key constituent.

Entrepreneurial thermodynamics

Although entrepreneurship is seen largely as an organizational or behavioral phenomenon, the challenges and paradoxes of sustainable entrepreneurship can be better understood in a thermodynamic perspective. All things in the observable universe are affected by and obey the laws of thermodynamics. Entrepreneurial systems are no exception. If entrepreneurial energy is considered the heat of a heat engine, the laws of thermodynamics apply strikingly to systems analysis of entrepreneurship. Entrepreneurial energy provides the power to performance of a start-up firm. Just as temperature, pressure and chemical potential of a heat system dictate the thermodynamic behavior of a heat engine, energy, passion and competencies of an entrepreneurial system dictate its behavior. As an analogous concept, entropy is a thermodynamic property that is a measure of the energy not available for useful work in a thermodynamic process such as in energy conversion devices, engines, or machines. Such devices can only be driven by convertible energy, and have a theoretical maximum efficiency when converting energy to work. During this work entropy accumulates in the system, but has to be removed by dissipation in the form of waste heat. Many entrepreneurial systems are affected by the entropy caused by the lag that typically exists between the passionate fast-forward of the entrepreneur and the conservative status quo of his leadership and managerial team.

When I postulate that an entrepreneur is one who creates something out of nothing, evidently I challenge the first law of thermodynamics, which is an expression of the principle of conservation of energy. The law expresses that energy can be transformed, i.e. changed from one form to another, but can neither be created nor be destroyed. It is usually formulated by stating that the change in the internal energy of the system is equal to the amount of heat supplied to the system, minus the amount of work performed by the system on its surroundings. However, to the extent that a successful entrepreneur draws more than proportionate output from lean inputs, whether meager financial resources, insufficient talent pool, indifferent regulatory policies or inadequate market perception, a true entrepreneur challenges the first law of thermodynamics. Drawing lessons from this, however, entrepreneurship in India would fly even higher if financing options for entrepreneurial firms are expanded substantially, talented people opt enthusiastically to support entrepreneurs, regulatory agencies provide fast-track, single window support to start-ups and expansion projects, and customers encourage indigenous entrepreneurial product and service offerings.

No two entrepreneur systems can be alike. This is because no firm, much less an entrepreneurial system, is insulated from the external eco system (as in a thermodynamic adiabatic process). Adiabatic processes of thermodynamics between two specified states of a closed system specify that the net work done is the same regardless of the nature of the closed system and the details of the process. Entrepreneurs who refuse to be insulated and introverted and in contrast excel in interacting with the eco system and in influencing to achieve positive outcomes achieve superior results. Successful entrepreneurs need to be seen, felt and experienced by various stakeholders, from employees to investors, from domestic associates to international partners, and from local governments to central government to reinforce faith in entrepreneurial capabilities. Entrepreneurs have to be sensitive to external eco systems to manage their expectations in a non-adiabatic fashion.

Systems of entrepreneurial energy calibrate with the second law of thermodynamics as well. The second law of thermodynamics is an expression of the tendency that over time, differences in temperature, pressure, and chemical potential equilibrate in an isolated physical system. From the state of thermodynamic equilibrium, the law deduces the principle of the increase of entropy and explains the phenomenon of irreversibility in nature. The second law of thermodynamics, also known as the law of increased entropy postulates the loss of matter and energy gradually over time. Usable energy of a power system is used for productivity, growth and repair. In the process, usable energy is converted into unusable energy. Thus, usable energy is irretrievably lost in the form of unusable energy. The greater the unusable energy the greater would be the inefficiency of the system. Entropy is defined, in practical thermodynamics, as a measure of unusable energy within a closed or isolated system (even, the universe as the ultimate example). As usable energy decreases and unusable energy increases, "entropy" increases. Entropy is also a gauge of randomness or chaos within a closed system. As usable energy is irretrievably lost, disorganization, randomness and chaos increase.

The second law of thermodynamics has several lessons for entrepreneurial organizations. Just as no heat engine is one hundred percent efficient, no entrepreneurial engine is totally efficient. It would be inappropriate on the part of entrepreneurs to equate their organizational energy levels to their individual energy levels. Smart and practical entrepreneurs, therefore, work to accept the theory of entropy and work towards minimizing the heat loss rather than expect the organizations to outperform their own energy levels. The second law implies that heat can never move from a colder body to a hotter body. So is it in entrepreneurial organizations; organizational teams would sap the energy of an entrepreneur unless the teams themselves are made up of high energy, entrepreneurial members. The need to look beyond the founder’s capabilities and build a high performance team, preferably also an entrepreneurial one too, is evident for the long term sustainability of entrepreneurial organizations.

The third law of thermodynamics, though much less known relative to the other two laws, is equally important for entrepreneurial organizations. It states that the entropy of a heat system attains zero when the system reaches the absolute zero temperature (Kelvin temperature of minus 273 degrees centigrade). The third law of thermodynamics means that as the temperature of a system approaches absolute zero, its entropy approaches a constant (for pure perfect crystals, this constant is zero). A pure perfect crystal is one in which every molecule is identical, and the molecular alignment is perfectly even throughout the substance. For non-pure crystals, or those with less-than perfect alignment, there will be some energy associated with the imperfections, so the entropy cannot become zero. Drawing an analogy, if an entrepreneurial organization becomes a pure perfect crystal organization, ie., an organization in which each employee has at least the same energy and talent level as the founder-entrepreneur then the entropy or loss in the system would become zero. As we can appreciate, such a pure perfect crystal organization is an impossibility. Entrepreneurs would do well, however, to seek high energy levels within their organizations to the best extent possible, providing opportunities of empowerment and business building to such members. Otherwise, as with Google and other entrepreneurial organizations, high entrepreneurial energy individuals would migrate to establish their own ventures.

Minimizing entropy and maximizing energy usage

The laws of thermodynamics are absolute physical laws - everything in the observable universe is subject to them. Like time or gravity, nothing in the universe is exempt from these laws. Human and corporate entrepreneurial systems are no exception. The laws of thermodynamics, the law of energy conservation, the law of energy loss and the law of zero entropy, urge the entrepreneurs to look beyond themselves and model their organizations around the core concept of entrepreneurial energy. Neither egoistic defiance nor fatal compliance to the entrepreneurial thermodynamics would ensure sustainability of entrepreneurial energy. Institutionalization of entrepreneurial energy through structure and talent optimizes entrepreneurial thermodynamics.

Posted by Dr CB Rao on February 7, 2011

Organizations as Knowledge Societies: Co-transformation with Employees

It is amazing to see how employees and organizations are often overtaken by issues of rewards and recognitions while considerations of performance and knowledge remain muted. Employees are singularly focused on individual performance while organizations at best are able to expand individual performance considerations to departmental and company levels. Clearly, there is a need for a deeper understanding of the triggers for this manner of organizational behavior and management, and arising from that definition of a transformational paradigm to actualize employees and organizations.

Recognition versus worthiness

In organizations, each time recognitions and rewards are bestowed upon some employees and some teams such actions, how well-intentioned and well-calibrated they are, cause perceptions of inequity in others. The perceptions of distraught when such actions are not well-thought out can only be imagined. Even post-recruitment new employees often get into a spin with multiple comparisons. Unfortunately, organizations are not sensitive to the implications of reward-recognition syndrome and measures to correct them. As a result, it is not uncommon to come across in any type of organization employees or managers who carry a chip on their shoulders. Equally common is to see employees who feel or assume that they are fine but it is their peers, subordinates or superiors are the ones who carry a chip on their shoulders.

As a metaphor, the phrase ‘chip on the shoulder’ describes people who nurse a grievance which requires either disputation or redress. Often, a self-righteous feeling of oppression or inferiority causes such employees to display a state of perceived inequity or oppression at the slightest provocation. Many times, superiors and peers too fail to recognize the existence of such feelings caused by valid circumstances or events. If these individual issues are not addressed appropriately in a timely manner the cumulative impact could be in terms of distorted culture and lowered morale caused by frequent friction among employee groups, and also between employees, their peers and superiors, and could erode the level of motivation in an organization.

Employee ’chippiness’ arises from several factors of organization design and talent management. Firstly, misalignment of organization structure and strategy on one hand and improper fit of the person and job result in performance warps that are not directly attributable to employees or their team members. Secondly, inadequate appraisal of an employee's performance and potential against internal goals and external benchmarks results in perceptions of either low self-worth or false superiority. Thirdly, inequitable deployment of performance management systems, in terms of reward or punishment, results in individual and organizational turbulence. Fourthly, unwillingness or diffidence of managers and leaders to counsel their team members in a transparent manner as to where they stand often results in unrealistic and assumptive self-evaluation in employees.

Left unattended ‘chippiness’ accumulates over time in an organization in an insidious manner, expanding from an individual centered perception to a shared cultural feature. Its negative behavioral impact ranges from passive participation to aggressive defiance in organizational activities by the affected employees. The former sub-optimizes organizational performance while the latter de-stabilizes organizational harmony. While employee reward syndrome is not a serious threat to organizational performance, the causative factors such as structure-strategy or person-job misalignment and managerial-leadership diffidence are more fundamental issues which are likely to erode organizational effectiveness. To that extent, unabated and unresolved reward-recognition issues constitute an early warning sign of latent impediments to organizational performance.

From an organizational behavior perspective, employee concern on rewards and recognitions is reflective of an internal debate in an employee's mind, whether grounded on right reasons or wrong perceptions, on his or her talent-performance equation. Despite the negative associations it has, the chip an employee carries on his or her shoulder is indicative of the human need for an employee to reassure the status he or she has in the organization. Ignorance of the syndrome by the employees and managers leads to an unhealthy preoccupation with virtual performance and potential rather than healthy equilibrium with validated performance and potential. Clearly, as companies seek to achieve tangible performance in a competitive manner the need to keep employees fully aligned and motivated cannot be overemphasized.

As organizational experts are aware, an employee is essentially trained to operate conceptually and analytically in the functionalities of planning and executing as well as identifying and resolving organizational problems. The typical employee is thus a ‘mind’ employee. As a physical metaphor, chip on the shoulder may reflect a weight the employee copes with while discharging his work, but in reality the chip resides in the mind of the employee. The feeling one has of chip on the shoulder is somewhat reflective of the mind's ability to discriminate and process information. There is, therefore, merit in transforming the employees from a preoccupation with the negative recognition syndrome that employees usually fall prey to into a positive worthiness culture that needs to be assiduously cultivated in the employees and the broader organization. However, the journey from ‘recognition chip on shoulder’ to ‘worthiness chip in the mind’ would be a complex and challenging journey.

Defining employee and organizational mind-space

Conceptually we can define two layers of mind-space that exist in a company. The first layer, which is the macro or cover layer, is the mind-space that the organization in the overall has. The second layer is the micro or the foundation layer that exists at the individual employee level. The occupancy of these two mind-space layers in terms of key issues provides a background for transformation from a recognition mindset into worthiness mindset. Typically, the organization’s mind-space is occupied by three sets of issues. The first set of issues relates to physical and financial goals for the markets. The second set comprises enabling goals such as quality, safety, environment, productivity and innovation. The third set relates to the competitive dynamics, flexibility, opportunities, challenges or constraints imposed by the industry and regulatory environment on which the company has little control. As it navigates through the three sets of issues, the organization cannot recognize itself or reward itself except through performance. The organization also cannot morph itself to move from low recognition/reward areas into high recognition/reward areas. In contrast, the employee mind-set is occupied not only by professional goals that cascade down from the organization goals but also by personal goals that are influenced by the family and society of which the employee is a part.

Secondly, institutions are expected to deliver returns to shareholders. The controlling groups of companies, whether investors or lenders legitimately expect both growth and profitability, and in any case profitability as recognition mechanisms. That said, companies can secure profitability even in competitive, fragmented markets. Industry structure rarely goes beyond a four-hierarchy structure (end product, aggregate, component, raw material), and each tier has relatively flat distribution of firms with potentiality of varying scale but reasonable profitability profiles. In other words, firms can actualize investors with profits and market capitalization, independent of scale through deployment of appropriate strategies such as innovation and excellence. On the other hand, individual employees of organizations have little option of recognition except through growth in the hierarchy. The way organizations are designed there remains only lesser and lesser room as one seeks to grow higher and higher. The more high performers an organization enables, strangely the greater the competitiveness for growth that it bears. While organizations can fight it out with competitors legitimately, employees perforce have to compete internally with their own colleagues to seek growth. To date, no organization design has succeeded in enabling equal growth opportunities for all its performers on the platforms of collaboration or competition. Chippiness is thus a mild form of inter-employee comparison and competition that naturally occurs even in the most collaborative organizations.

Thirdly, forced ranking and relative titration are inescapable concomitants of any human endeavor which is based on evaluation criteria. This has no relationship with the level of intelligence, aspiration or aptitude of the entrants to the bottom of the organizational pyramid. Even if an organization recruits all Ivy League graduates to its frontline employee ranks, such employees would find the room for growth insufficient or find themselves rank ordered to suit the slots available. The only way more competencies can be rewarded is by transforming the classic pyramid organization structure into a square organization structure, which is impractical. As the recent experience with Wipro, a leading information technology company in India, showed even at the ostensibly enlightened level of top management the concept of dual CEOs would not work. A study of over 6000 firms in the USA by Mercer showed that just around one percent had co-CEOs or co-chairmen. The picture is the same even at domain level; dual leadership is hardly ever practiced. Given these three factors, solutions for employee harmony have to look beyond organizational titles and examine deeper than superficial competencies.

Organizations as knowledge societies

If organizations are designed, developed and managed as knowledge societies as much as delivery entities, probably the unhealthy comparisons that exist in an organization would dim. Organizations have to be primarily execution focused, pushing the spotlight, in its wake, on individual and team performance. This, in turn, leads to parity in performance versus equity in rewards debate. However, when organizations are also simultaneously shaped as intellect driven knowledge societies not only performance would be even higher but also comparisons would be justified in terms of intellectual perspectives. Shaping a knowledge society would be contingent on the following ten principles.

1. Avoiding strategy-structure mismatch

Structure inevitably follows strategy, as well established by Alfred Chandler and other follow-on experts in their research. Yet, organizational or corporate structure tends to be rigid while corporate strategy is required to be, and can be, relatively more flexible. Unless, constant attention is paid to alignment, and realignment of strategy and structure, organizations would present to their employees a format of suboptimal strategic execution. In such a situation it would be difficult to differentiate between structure related handicaps and employee related deficiencies that affect performance.

The structure-strategy mismatch can be addressed by integrating various disciplines, and more particularly, the human resources function in strategy development, both at strategic and operational levels so that structural solutions are well-aligned. Secondly, HR professionals need to focus on reinventing the organization structure from time to time based on changes in corporate dynamics and competitive trends. It is important to remember that strategy can be executed only through motivated people actions.

2. Matching the position and the person

Strategy and structure, even when aligned need matching talent to achieve perfect execution. Identifying positions in an organization as a byproduct of strategy-structure match, defining the job requirements, and recruiting the right talent would be essential enablers for desired execution of strategy. In the absence of an appropriate person-position alignment, the responsibility for sub-optimal performance devolves more on the leadership than on the person, himself or herself. Many times organizations deal with person-position definitions in a piecemeal departmental fashion not realizing the advantages that could accrue by a holistic definition of organizational needs and standards.

In order to achieve optimal person-position match, the international competitive trends which continuously raise the bar of performance need to be continuously studied. Simultaneously, the need to equip the employees with new skills and knowledge and extend their horizons of operation is also paramount. This requires that the organization is committed to continuously upgrade its knowledge levels and practices to state-of-the-art standards to remain competitive.

3. Balancing hard work with smart approaches

Several studies have pointed to the decline of number of working hours in advanced nations as a causative factor for declining productivity. On the other hand, developing countries and emerging markets, in their hunger for growth, tend to work hard to meet the growing opportunities. That said, hard work needs to be balanced with creative, efficient and effective methods of work to be able to achieve desired competitiveness. Japan and Korea have established themselves as role models of hard work combining with innovation to develop world-class products. China and India in certain sectors, have emerged as role models of hard work providing handsome dividends when carried out in a creative way (for example, the global delivery model of the Indian IT sector). Organizations need to recognize differently employees who combine their hard work with smart application.

4. Combining efficiency and effectiveness

Students are educated and employees are trained to be efficient. Efficiency is usually measurable in terms of speed of delivery. Efficiency as exemplified by speed is, however, only one facet of overall performance. Effectiveness of delivery in terms of various other essential measures of performance is equally important. Machine shop managers who achieve higher throughput by operating machine tools at the highest levels of speed and feed would perhaps be causing more reworks and higher cutting tool consumption than managers who operate the machines at optimal speeds and feeds.

Developing measures for organizational effectiveness is a challenging task. In normal organizations where often activity is mistaken for achievement, it is quite a task to acknowledge that even achievement is not equivalent to effectiveness. Clear definition of goals as well as pathways to achieve goals at one level and enshrining business aspirations in ethical principles at another level are helpful. These let employees discriminate between efficiency and effectiveness, and therefore achieve a balanced pursuit.

5. Rewarding knowledge-based performance

One of the important gifts of industrial engineering to industrial management has been work simplification and work definition. This has enabled employees become more productive than ever before. In addition, standard operating procedures ensure that jobs are carried out as per well thought-out procedures to achieve required parameters. A concomitant of this efficiency movement has been a more dominant stress on “know how” rather than “know why”. The subordination of the inquisitive self has probably led also to a lower premium on acquiring knowledge other than what is strictly required by the job on hand.

While organizations do try to overcome this self-imposed constraint by seeking contributions in related areas and emphasizing continuous learning, the impact would not be same as building knowledge societies of organizations. A complete understanding of the value chain, for example, is important for every employee regardless of whether he or she works only one part of the value chain. End-to-end thinking with focused execution is the key for knowledge-based delivery. Japanese organizations have long perfected, beneath the veneer of conformist organizations, an unending know-why approach. The seeds of such approach start really with all entry level employees being put through a total company, operations and technology induction to expand the knowledge base – a model worth emulating.

6. Facilitating continuous learning

One of the striking features of modern day knowledge management is the pace of information obsolescence. New technologies are not only enhancing product and process knowledge but are also mandating new ways of doing business, on a more global scale than even before. A pre-occupation with internal best practices and a diffidence to evaluate external best practices often accentuates the knowledge gap. In many organizations it is often left to individuals’ aptitude and grit to upgrade their capabilities through formal education processes.

An employee’s career typically spans over three decades; development of knowledge over such a long span or on a rolling decade basis is likely to grow exponentially. An awareness of the huge frontiers of knowledge one needs to cross will bring to an employee the needed humility to view his or her performance in the right perspective. The diffidence of a manager or a leader to counsel or mentor his employee is also directly related to the knowledge-edge that such managers and leaders develop through their own upgrade initiatives.

7. Supporting execution with resources

Employees would need an appropriate balance of responsibility, empowerment and accountability. While position-person match defines responsibility and strategy-structure match defines goals and accountability, empowerment is both intrinsic and extrinsic to an employee. As discussed earlier, development of a knowledge base and continuous updating would enable a more effective executive. Extrinsic to the employee’s performance, however, is the resource deployment provided for the employee to execute on his plans. In the absence of appropriate resources, it would be easy for the average employee to obfuscate any shortcomings of his role in terms of resource shortfalls, which may or may not be germane to specific cases.

A rigorous yet flexible corporate planning and budgeting process is essential to focus on business goals, portfolio plans, delivery programs and the enabling financial and non-financial resources. Successful organizations have created independent planning and budgeting departments which are linked to strategic and operational units of the organization respectively, but are also intertwined with each other in terms of plan and budget development and review processes.

8. Fusing collaboration and competitiveness

Zones of comfort are helpful for teams to reach their higher potential. Mutual trust and dependence enhance shared commitment to corporate goals. Not unnaturally therefore much of the organizational behavior theory and practice has focused on the benefits of collaboration, not only within teams, but across functions and between firms even. While this is valid and relevant, zones of comfort could also lead to certain levels of complacence, and in some cases even mediocrity, as the bars raise higher in the industry, as a whole. Successful organizations have discovered the benefit of injecting mild and open competition as a strategy to enhance overall competitiveness.

Competition would be counter-productive when it is individualized; however it can be catalytic when it is related to corporate goals and achievements. Organization structures and team formations on one hand and portfolio division and geographic spreads on the other could be markers of competition. An ideal organization is one that integrates collaborative nuances with competitive dimensions. For example, an R&D division can learn from the best practices of another division, say manufacturing, and incorporate the best practices of productivity to enhance product development throughput. Vice versa, manufacturing division can observe how innovation and empowerment take place at employee level in a research organization and achieve significant innovations in shop-floor. Collaborating internally, the corporation can become stronger externally. At the same time, internal deficiencies can be made up by external collaborations; the competition induced by such moves makes internal divisions more adept.

9. External benchmarking

Benchmarking is the most effective manner of staying competitive. While most organizations incorporate internal benchmarking within their companies, very few resort to external benchmarking of attributes, skills or performance as a routine process input. A few organizations believe that a certain level of attrition and accretion helps in maintaining a cultural momentum to achieve weeding out of stale internal practices and integration of leading edge external approaches. On the other hand, a systemic and process-driven effort at external benchmarking will combine the advantages of organizational stability with potentialities of continuous reinvention.

As with research, a focus on competing in the industrial space with best practices helps achieve the goal. Encouragement to publish papers and monographs in peer-reviewed journals, enabling speaking assignments in prestigious conferences, participation in technology conferences and empanelment in practice upgrade initiatives at industry level would help employees appreciate the progress made in the external environment and accordingly assess the gaps.

10. Promoting self-actualization

To date, Abraham Maslow’s five step hierarchy of human or employee needs remains true and unshaken for its wisdom and relevance for individual and organizational development. Rewards and recognition may be passé but self-actualization would never be. It would continue to remain the most challenging goal and most satisfying achievement for employees and organizations. Self-actualization, unlike common perception, is not an end in itself; it is a process. As an employee or organization achieves self-actualization, the process of re-discovery commences yet again, leading to higher levels of knowledge acquisition and enhance actualization.

Organizations that practice self-actualization are competency-based and competitiveness oriented. They emphasize acquiring knowledge for the future as much as deploying available knowledge for the present. A complete organizational value chain that aligns strategy and structure, matches jobs and talent, enhances knowledge levels and performance outcomes through a combination of measures would be an assured pathway for self-actualization. Self-actualization can be organizationally driven with the company as an entity aspiring to become the best that it can.

Co-transformation of employees and organizations

Neither employees nor organizations can by themselves transform themselves into knowledge entities. Only through concerted and coordinated approaches, organizations and employees can co-transform themselves from a sub-optimal rewards culture to a virtuous self-actualization culture. Organizations as knowledge societies can be truly transformational to national economic development.

Posted by Dr CB Rao on January 31, 2011

Five Great Indian Leaders: One Singular Leadership Ethic

In my long professional career of over thirty six years (from 1974 to date), I was fortunate to work with five great corporate leaders of India whose skills, attributes and personalities define sublime leadership in all its facets. A study of their leadership styles brings out that the Indian leadership model is clearly more of substance than of style. If India is now acknowledged to be in the vanguard of global industrialization, and if the world has stood up today to recognize that there exists a uniquely Indian way of management, such acknowledgement and recognition is in no small measure due to the leadership strengths that exist in India. The five leaders who are discussed in this blog post are archetypes of the vast community of the Indian leadership that is uniquely Indian, yet globally competitive.

The Indian leadership style is highly competency centric, relentlessly growth focused, steadfastly employee oriented, significantly export oriented, and uncompromisingly hard working. Indian leaders, whether they have their roots in enterprises belonging to the government owned public sector or family and people owned private sector, and whether they have entrepreneurial moorings or professional background reflect the above mentioned five leadership essentials. Each of these five facets, especially the facets of competencies and growth orientation have also variations that are contextual to the individual leadership backgrounds and the distinctive personalities. The clear common thread, however, is one of aggressive promise and authentic delivery, despite the challenges posed by a continuously dynamic macroeconomic and regulatory environment of a developing resource-scarce economy.

Given the high nationalistic orientation and professional pride that the Indian leaders possess, and the great opportunity for India to leapfrog into the innovation space while continuing to be the back office and workshop for the future, the Indian leadership passion never ebbs. The discussion of the five leadership examples brings out clearly that the Indian leadership model never takes it easy. As a matter of fact, each of the leaders discussed in this blog post even today actively contributes to the Indian leadership firmament, never resting on the laurels. It is fascinating to see how the Indian leadership recharges its batteries through work, and only more work, setting an inspirational model to the executives and managers across the organizations. In the earlier dogmatic socialistic era of the 1950s to 1980s as well as the recent pragmatic liberalization period of the 1990s and 2000s, the Indian leadership model has evolved in a consistently positive manner.

Though it is daunting to capture the multifarious leadership tenets of these five great leaders, and is even more difficult to describe adequately the several nuances of my association with them in a blog post I would, nevertheless, attempt in the chronological order of my getting in touch with them. The evocative titles that I have given to each of the models perhaps bring out just one facet each of the multiple leadership capabilities that the five great leaders possess.

Nationalistic rationalism

When the Government of India decided in the mid-1970s to bring into India a two-wheeler scooter for the common man in competition with the well-entrenched Vespa and Lambreatta models of dated designs, and that too through the transplantation of Innocenti production plant from Italy to India, it turned to Mr S Soundararajan (“SS”) who was heading the State owned Garden Reach Shipbuilders & Engineers Limited. SS, a protégé of the then Defense Minister VK Krishna Menon, a mercurial leader in his own right, had by then built a formidable reputation for turning around the shipbuilding firm which proved to be a waterloo for many a chief executive. SS, as the chairman & managing director of the new two-wheeler company, christened Scooters India Limited, brought a rare nationalism to the venture. His faith in Indian engineers was amazing; he refused to engage any Italian engineer in connection with the transplantation and indigenization efforts, and instead relied upon the Indian engineers to manage technology transfer, knowledge assimilation, plant commissioning and commercial launch. He had also a unique faith in the young graduate engineers of India, and extended bold invitations to them to set up a string of scooter retail centers and a clutch of component manufacturing ancillary units in India to support the new two-wheeler operations. At a time when import of components ruled roost in the Indian industrial scene and indigenization was considered a multi-year Himalayan task, SS motivated and managed the launch of the first product, the 150 cc Vijai scooter of the latest Innocenti vintage, in a completely indigenized state. While “India Can” is a fashionable axiom today it is to the credit of SS that he revolutionized Indian industrial thinking for true self-reliance decades ago. SS emerged in that context as an icon of nationalistic industrial pride in India.

The disaggregated components of SS’s leadership model make a fascinating account. A socialistic work ethic marked by equality combined with a capitalistic drive for efficiency characterized his unique leadership model. His egalitarian work ethic was characterized by a flat organization in Scooters India long before the concept became popular. He was completely socialistic, rubbing shoulders with the common citizens, whether on official or personal travel. It was all, however, not merely emotional or inspirational leadership with SS. A razor sharp intellect and an overwhelming passion for knowledge characterized his leadership model. Though a finance professional (SS was an Indian Audit and Accounts Service, IAAS, professional), he had an outstanding grasp of engineering matters, and personally solved many engineering and manufacturing problems. A photographic memory, an amazing sense of recall, strong analytical skills, a ruthless task focus, an unforgiving attitude towards slippages, a punishing approach towards slipshod work and a dare-devil approach to industrial risk-taking made SS a much respected as well as feared leader. He was a strategic visionary to the core too. Quite apart from the strategic marketing and vendor development approaches, his model of centralized production of aggregates and components of the scooter and decentralized assembly of the finished product in various States through independent licensee operations reflected his strategic thinking.

I was the Special Assistant to S Soundararajan between 1974 and 1976, following my stints in State Bank of India, and Tata Motors (then, Telco). My two years with him gave a lifetime of valuable experience to me, from shop floor studies to strategic licensee affairs; and from employee motivation to enterprise management. The principle of end-to-end thinking in the solution of operational and strategic problems, which became my forte in subsequent years, was inspired by his unique thinking approach. He challenged me to raise the bar of performance continuously, placed me resolutely in the zone of perfection, taught me the art of standing up to stalwarts, instilled in me the work ethic of selfless service and developed the rare attribute of thinking and acting strategically and tactically simultaneously. Whether regular shop floor production planning and inventory control or one-time savings in oil and energy consumption through optimized paint shop operations, SS provided the free play for demonstrating my engineering and analytical skills. That he saw a future leader in me as early as in the mid-1970s, despite my soft spoken and self effacing personality, is a great tribute to his ability to identify talent and challenge it to achieve greater heights. Clearly, S Soundararajan is an Indian leader par excellence who inspired others with unparalleled competency, irrepressible passion, and unquestionable ethics.

Focused specialization

When British Leyland plc decided in the late 1970s to steer the management and operations of its Indian subsidiary, Ashok Leyland Limited (established initially in 1948 as Ashok Motors to make Austin cars) into Indian hands, the parent corporation eventually focused on Mr RJ Shahaney, the then chairman & managing director, Jessop & Co a state-owned leading engineering firm for the onerous task. It was a decision well validated by the thrust of development and growth that RJS brought to the affairs of Ashok Leyland. RJ Shahaney, popularly called ”RJS” or “Ram Shahaney”, has been the long time chairman & managing director, and is currently the chairman emeritus of Ashok Leyland. He has also been chairman or director of many other Hinduja Group companies. RJS has been a strong believer in technological modernization and plant infrastructure development as the key drivers of corporate growth. Under his stewardship, AL grew manifold in scale and scope into a multi-site truck & bus behemoth in India, consistently optimizing fuel efficiency and load carrying capability of its products, and assimilating both Japanese and European concepts of manufacture. In fact, achievement of a singularity of purpose and delivery from a plurality of ownership, regulatory and environmental conditions characterizes RJS’s unique leadership strength. RJS was especially adept at deploying technology as a strategic driver of competitive advantage. He had an uncanny capability of harmonizing the best-in-class technologies of each aggregate of a commercial vehicle to develop a hybrid vehicle that was easily the best-in-class for India. A truck or bus engineered from a synthesized fusion of Japanese Hino diesel engine, German ZF synchromesh transmission, American Rockwell axles and British Leyland cabs is a tribute to his technological wizardry. Simultaneously, he also drove personally the concepts of indigenous vehicle design and manufacture to execution.

Undoubtedly, RJS ranks among the best in terms of leadership capabilities in the Indian industry. His crystal-clear thinking, laser-sharp focus, 360 vision, photographic memory, conceptual and analytical mastery and networking finesse are unmatched. He was extremely task focused and did not pardon delays and unjustifiable failures. Though he was an engineer by profession, his grasp of, and grip over business, financial and legal matters was exceptional. RJS was clearly a leaders’ leader. Several industry stalwarts worked under him at AL to enrich the management team at AL. RJS was also a champion of internal talent development. The clarity with which he identified R Seshasayee in the 1980s as the future leader of AL, enabled the space that could match Sesh’s extraordinary capabilities, and the steadfastness with which he supported Sesh as his successor were indeed remarkable.

RJS was a person not only of great professional eminence but also outstanding personal ethics. Despite the several environmental changes and market vicissitudes that AL faced from time to time, he held on to his professional beliefs and personal values and saw to it that no genuine platform or idea was ever mothballed. RJS’s passion for technology and scale is legendary. Technological modernization and infrastructure expansion at AL that were relentlessly pursued by him from the 1980s positioned AL as an undisputed leader in the Indian truck and bus industry. Long before the Japanese automobile industry took root in India, the innovative manner in which RJS led the absorption of the Japanese methodologies and techniques in AL’s engine assembly and manufacturing lines was exceptional. From multi-axle vehicles, tractor trailers and defense vehicles to Hino diesel engines, synchromesh gearboxes and ergonomic cabs, RJS was a pioneer of technological modernization at AL. After British Leyland sold its majority stake in Ashok Leyland to a joint venture of Hinduja Group and Iveco, RJS worked with the Hinduja family to drive the Group’s diversification moves, which he did as effortlessly as he steered the wheels of AL in the home turf of automobiles.

In my long professional career of over 36 years, my association with RJS has probably been the longest and the most profound. My first interaction with him was when I floated a note in 1982 on what I thought was an adventurous volume and geographic expansion that AL undertook in the 1980s under his stewardship. That was the time RJS was held in extreme awe by the AL organization that was conservatively molded by the previous Indo-British Management. It was a great tribute to his objectivity and equanimity that he not only took the critically evaluative tone of my note in his stride but also identified me to be his undeclared protégé and deputy in several of his strategic business initiatives and technological upgrades that he led at AL. My relationship with RJS was one of implicit mentor-mentee. He influenced talent development both by precept and practice and was a great role model. It was a pleasure and challenge to watch him dissect and analyze issues as well as numbers, and come up with brilliant solutions, whether in day to day internal corporate management or in external strategic negotiations. The support he gave for my Ph.D. program in industrial management at the Indian Institute of Technology Madras will always be cherished by me. Given the vast canvas of technological and business initiatives that RJS led at AL, it was a pleasure and privilege for me to be a part of all such developments with him.

World-class erudition

When Mr RJ Shahaney was like a huge banyan tree dominating the leadership landscape in Ashok Leyland, it was inconceivable that there would be an opportunity for another colossus to grow with the company to a leadership position. Mr R Seshasayee (“RS” or “Sesh” as popularly called) joined the company in the late 1970s as its internal audit manager from Hindustan Lever, almost at the same time as RJS joined the company as its first Indian managing director, and rose rapidly in the company to become the second Indian managing director in 1997. It required an extraordinary skill-set on the part of RS to grow under the never receding umbrella of RJS, with a vibrantly different personality and sparklingly differentiated skill-set. RS was the first consummate business leader from the conservative Southern India to make his mark felt as a pan-Indian leader. He conducted the affairs of India’s apex industrial association, Confederation of Indian Industry (CII) as effortlessly as he managed the affairs of the automobile giant. His unparalleled erudition that matches the best of Harvard, Wharton and Stanford as well as IIT and IIM alumni brings a rare universality and global sheen to his leadership stature. RS, despite his financial academic and professional background, instilled in himself a fine grasp of all things technical. His first internal audit study in AL which focused on engineering optimization and cost compression of carburizing in the huge heat treatment furnaces of AL was an incontrovertible proof of his engineering grasp, financial analysis and creative approach. There was no looking back for him thereafter. Interestingly, Sesh’s interests and passion extended beyond corporate matters. He is a connoisseur of arts and music, and a fine vocalist himself.

When RJS made way for RS as the managing director in AL it was a latent question in everyone’s mind as to how any other leadership model could be effective, let alone be different at AL. RS proved that a true leader is one who creates his own shoes rather than one who tries to fit into another leader’s shoes. Without in any manner diluting the technological ethos institutionalized by RJS, RS added newer technological nuances, redefined competitive economics of design and manufacture, and triggered the development of a global product range. An outstanding and passionate speaker, out-of-the-box and lateral thinker, incisive and intricate analyst and no less important an empathetic and enabling people’s leader, RS brought a global recognition to the Indian industry. He has been responsible, leading from the forefront, for building a youthful organization at AL, bringing in winds of change and unleashing energies of creativity. Yet, the organization needs more of his strategic services, as exemplified his being elevated as the executive vice chairman of the company, to lead the strategic drive as a top-ranking global automobile company, in line with the vision of the new chairman of Ashok Leyland, Mr Dheeraj Hinduja.

I did not have the formal opportunity to work directly with RS as part of his organization all through my two-decade career in AL, except for my last year but my association and rapport with RS were perhaps more intense and synergistic than what any of his direct reports would have had. Whenever he embarked on any major conceptual exercise or business initiative, he would invariably invite me to thought-partner him, and provide supplemental thoughts as well as counterpoints to his views. The several theme sessions we had as part of the corporate planning exercises were particularly exhilarating from an intellectual point of view. His openness to seek an alternative point of view prior to solidifying his approach has been a strong point of his participatory style of leadership. His ability to channel the finance function as a business enabler at one level and as a prudential gatekeeper at another level was instructive to me as I went through the integrated corporate planning exercises with him. RS was both an inspiration and challenge for me; inspiration because he demonstrated how communication is a key leadership skill and challenge because to be an effective corporate planner after him required the best of one’s strategic skills.

Passionate entrepreneurialism

Nations derive sustainable competitive advantage through the entrepreneurial passion of their professionals. Mr K Raghavendra Rao, founder-CEO, and currently the chairman & managing director of Orchid Chemicals & Pharmaceuticals Ltd (“Orchid”), epitomizes this essential entrepreneurial passion of India. K Raghavendra Rao (“KRR” or “Raghavendra” as is popularly called) set out to establish in 1992, almost simultaneous with India’s liberalization drive, Orchid as his entrepreneurial venture and grow it into a world-class, globally recognized integrated pharmaceutical enterprise. KRR, currently the chairman and managing director of Orchid, is unlike any other Indian entrepreneur. A true first generation entrepreneur hailing from a modest, conservative but disciplined middle class background he attained the stature of industrial leader by sharp intellect and sheer passion. Orchid represented a more challenging entrepreneurial journey than any other contemporary or prior era entrepreneurial venture. Unlike other ventures, Orchid did not have the benefits of inflection of technology, wave of outsourcing, size of domestic market, lack of entry barriers, and/or founder’s core technologies which drove the inception and growth of many an entrepreneurial enterprise in India or abroad. On the other hand, the Orchid model of excelling in the established and highly crowded Indian pharmaceutical space militated against the easy way. Though focusing on active pharmaceutical ingredients (APIs) and finished dosage forms (formulations) he built a business around indigenous process technology, global niche, scale and scope, and operational efficiency in the chosen product space. Starting with an initial focus on APIs for less regulated markets, KRR rapidly expanded the scale and scope of Orchid, progressively integrating into regulated generics markets and diversifying into innovative drug discovery. Building a US$ 3 million start-up into a US$ 500 million asset and 4000 strong employee enterprise, with a much envied status of becoming the 15th largest company in just 15 years from inception in an industry of several hundred Indian and MNC subsidiary companies, KRR demonstrated what Indian entrepreneurial gumption and passion could achieve.

KRR has many attributes that a great leader needs to have, from conceptual and analytical skills to strategic and operational capabilities and from a flair for communication and motivation to a penchant for control and coordination. More than anything else, however, his ability to connect with his stakeholders, from employees to investors, and from technology vendors to marketing partners in an endearing manner is remarkable. KRR passionately believed in establishing world-class facilities that generate employment and wealth for India. His commitment to environmental friendliness, as exemplified by his multi-million dollar investments to make Orchid facilities zero-discharge, place him in an entirely different class of altruistic entrepreneurs. In KRR, the oriental old world simplicity combines with contemporary new age dexterity to make him a charming, charismatic and dynamic leader, with a universal appeal. He is perhaps the most number-savvy leader in our midst, with a computer like numerical memorization and processing capability. And true to the already established thread of leadership in this blog post, despite being a finance and business management professional KRR has an amazing grasp over chemistry and pharmaceutics as well as engineering domains.

It was my privilege and pleasure to thought- and execution- partner KRR, whom I knew from my early Leyland days (from 1982 to be exact), on his entrepreneurial journey. After setting up pharmaceutical, steel, hotel and garment facilities and businesses in the rather industrially undeveloped areas of the Middle East, KRR set foot in India in April 1992 to set up his entrepreneurial venture with a modest seed capital of US$ 125,000. My leadership journey with KRR, built on the strong foundations of professional respect and personal rapport that we shared from the Leyland days, started first as an independent director from Orchid’s inception in 1992 to 1998 and later as its whole-time deputy managing director from 1998 to 2010. My association proves the point that a great leader has the uncanny ability to give the requisite space to peers and colleagues who can deliver value for his enterprise. He gave me the most challenging opportunity of conceptualizing and incubating all the diversification initiatives of Orchid from domestic formulations to global generics and from biotechnology to drug discovery. His unflinching faith in my strategic and negotiating capabilities helped me to structure several industry-leading strategic collaborations and alliances for Orchid. KRR’s ability to empower people to establish and grow initiatives, and provide value propositions for talented leaders eventually became Orchid’s core competence of attracting some of the best talent in the pharmaceutical industry to its fold. As part of this, KRR laid enormous faith in the competence of the Indian scientists, technologists and leaders to build a world-class infrastructure and global enterprise by themselves without any consultants. Such was the return commitment from his team that even in the most trying times of takeover threats, global economic meltdown and company-specific financial stringency, not a single senior team member left for greener pastures. My role, facilitated by KRR, in the strategic and structural transformation of Orchid remains undoubtedly the high point of my long career.

Technological virtuosity

Virtuosity, which reflects an almost inimitable and perfect skill that a true expert possesses, is not everyone’s forte. Virtuous masters are often seen more as domain specialists rather than business leaders. Mr RS Prasad, presently co-founder, and managing director of Suven Nishtaa Pharmaceuticals Private Limited is a virtuoso of pharmaceutical science and technology, turned into a passionate business leader. RS Prasad, popularly called “RSP”, is widely credited as the creator of some of the finest pharmaceutical research and manufacturing complexes in various corporations in India. He is also considered the pivotal force behind the generics successes of select Indian pharmaceutical firms, from the mid-1990s till date. An unmatched understanding of pharmaceutical science and technology coupled with a natural ability to develop new science and technology based on his own creative logic molded RSP into a unique techno-business leader. A fiery disposition towards exactitude and a friendly orientation to develop talent made RSP a rare genius who developed hundreds of pharmaceutical leaders in India, several of them now doing great stints in several overseas corporations. His talent development strategy is a simple three component strategy which is highly effective; he seeks accountability from his team members to deliver results, imparts deep knowledge, in terms of both know-how and know-why, and builds a community of professionals who share the vision of virtuosity. His vision is one of “doing right things and doing things rights” which alone, according to him, brings in sustainable results in the long term.

RSP proves a counter-theory that grassroots technical specialists can excel equally as high level strategic thinkers. He also establishes a framework that right-minded professionals would work, and choose to work again, with even the most exacting and often authoritarian taskmasters like him. The reason is that with RSP only objectivity and logic drive his fury. His team members appreciate that his passion to transfer knowledge to them, albeit through diligent working charters, ultimately empowers them. RSP characterizes a development model which abhors mediocrity at the peer and superior levels but accepts knowledge handicaps at lower levels with a view to make better professionals of his team members. Uncompromising integrity at both personal and professional levels, unflinching commitment to Indian science and technology, and unceasing quest for new knowledge and practice make RSP a true role model for the pharmaceutical industry. RSP, with his contributions to building of US FDA approved world-class pharmaceutical facilities, development of several products with Paragraph IV, first-to-file status for the US market, and shaping of a talent-driven quality oriented organization, is widely credited as the technological and scientific power behind the pioneering generics thrust of Dr Reddy’s Laboratories, which catapulted the company into the global league.

Supported by KRR’s passion to get the best of technologists into Orchid, I was instrumental in inducting RSP into Orchid as the head of regulated generics business initially. As Orchid under KRR set out to grow into the complex business of setting up world-class aseptic formulations facilities for regulated markets, RSP emerged verily as the man of the moment. It was a pleasure to watch him conceptualize any objective in terms of a total resource plan, laying out sequential and parallel activity plans and schedules, integrating quality and regulatory compliance in each of the activities. We shared a belief that my business creativity and his technological virtuosity could create unbeatable value for the corporation. In my long conversations with RSP I could challenge him, and also get challenged, in the process expanding our horizons of knowledge. This process gave me a unique opportunity to understand his capabilities, conceptualize his leadership model and also make suggestions for his becoming an even more effective leader. Dogged as he was in his beliefs, committed as he was to his credos and immersed as he was in his pursuit of excellence people considered it a challenge to prompt him to look at a different point of view. On the other hand, it was to his credit that he accepted some of the most strident feedback from me or possibly anyone else, as long as it was logical. If a model of perfect planning and execution, marked by the highest standards of quality and self-reliance, ever needed to be defined, RSP exemplified it.

Indian leadership and global marksmanship

The account of the five leaders points out certain attributes that are common amongst the great leaders of India. Firstly, it is the competency basket that calibrates a leader’s stature in India. While a leader may or may not be accepted for his or her authority, the leader will certainly be respected for his or her intellect in India. The competencies that are reflected in India’s sterling leaders include not only higher order intellectual abilities such as the depth and breadth of knowledge, impeccable memory, and sharp thinking but also unique success factors such as visualization beyond the obvious, conceptualization of complex issues and incisive analysis of data and information. Secondly, certain unique factors emerge as defining aspects of the leadership personality, embellishing the commonly shared competency basket in a manner unique to each leader. These could be could be nationalistic fervor, networking finesse, collaborative mindset, export propensity, perfectionist quest, expansive erudition, influential communication, entrepreneurial spirit and technological excellence. Thirdly, all successful leaders are also inspiring role models who demonstrate their grasp over their related as well as unrelated domains and also impart knowledge to others by precept and practice. Fourthly, they are aggressive taskmasters who seek accountability and clarify responsibility, in the process punishing inefficiency and rewarding performance. Fifthly, all of them have an unflinching faith in the ability of Indian scientists, technologists and managers to deliver, and within that faith, a distinct reliance on the young and the intelligent to rise to overcome all challenges. Most importantly, great leaders also happen to be leaders’ leaders and/or people’s leaders who succeed in building great leadership teams and organizations that deliver sustainable performance.

To consider the flip side, if such sterling leadership attributes existed in the Indian industry from the 1970s and all through the decades of liberalization the question remains as to why such leadership could not make a more profound impact on the companies that it led, and on the broader industrial scenario. The answer to this lies in the fact that for most leaders their strengths act their weaknesses too. The delivery models of the five leaders offer interesting support to the intriguing but true theory of strengths sub-optimizing themselves as weaknesses. The five delivery models of the five leaders may be summarized as: “Intuit - Improvise - Indigenize” of SS, “Plan - Prioritize - Push” of RJS, “Organize - Orient - Optimize” of RS, “Dream - Diversify - Dominate” of KRR and “Resource - Recharge - Regulate” of RSP. In each case, an excess of a dominant streak of leadership served to erode the potential full impact of the respective leadership models. High dependence on intuitiveness, daring resort to improvisation and dogmatic commitment to indigenization resulted in several of the pioneering initiatives of SS going awry. RJS believed in meticulous and cautious planning, sticking to core product competencies and top-down push for enhanced delivery which sub-optimized his great potentialities. Despite well-intentioned efforts and notable successes in re-organizing and re-orienting the corporation around new themes (for example, cost savings and innovation), RS’s eventual propensity to satisfy conflicting interests possibly led to some level of compromise in execution. KRR dreamt like no other entrepreneur or professional CEO could, and expanded as well as diversified his canvas with great aplomb and panache but his overpowering desire to dominate led to overreaching on strategic and execution fronts. RSP clearly knew how to resource even the most complex project right, excelled in continuously recharging his team but probably could not generate self-sufficient leadership because of excessive regulation and minimal empowerment. These are, however, not insurmountable handicaps; little moderation or aggression on some of the components would unleash full potential of the leadership models.

As brought out by this blog post, India has had, and continues to have, deep leadership talent, of which the five leaders discussed herein are some of the finest examples. The Indian leaders, despite the handicaps of dated technology, scarcity of resources, paucity of trained manpower, and excesses of regulation, excelled in overcoming the challenges and bringing growth and competitiveness to the Indian industry. As India Inc braces itself for a new global competition it is easy to see how the leadership competencies and the leadership models defined by these five great Indian leaders would be very much contextual to India’s step function growth. The apparent plurality of these leadership models reflects, in fact, the singular and quintessential Indian leadership model of intellect-driven work ethic, which is smart and intense. These leaders point to the enormous leadership talent that resides in India. If the leaders such as these great personae are able to find common forums to work together, say as members of boards of directors, the powerful thrust for India’s competitiveness would be unimaginable. These five great leaders who represent diverse generations of leaders demonstrate that Indian leadership has continuously reinvented, reinforced as well as mellowed over time.

I sincerely hope and pray that all of the wisdom, foresight and passion of these great leaders, and several others of their illustrious ilk, will continue to be available to India Inc and its constituent professionals for years and decades to come.

Posted by Dr CB Rao on January 23, 2011.