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'Firms need continuous renewal and exercise of leadership to do well'

Although Professor Sumantra Ghoshal's latest visit to Bombay was for the launch of his new book Managing Radical Change: What Indian Companies Must Do to Become World-class, the management guru played with aplomb the role of a moderator of a debate on business in India, featuring corporate czars Rahul Bajaj and Nandan Nilekani.

After the debate, company executives among the audience swarmed around him, seeking the customary autographs on his book and some words of biz-wisdom. Someone offered to take him out to a Ghulam Ali concert. Someone else expressed concern over his low voice. "Chaar din se lecture tour chaalu hai (I've been on a lecture tour for the last four days). The strain…. One shot of whiskey should restore my voice," the suave, 52-year-old, medium-built, suited professor assured the executive smilingly.

Next morning, at the Taj Mahal Hotel's rooftop Apollo Bar, overlooking the Arabian Sea, the holder of the Robert P Bauman Chair in Strategic Leadership at the London Business School displayed no signs of strain, only zeal for a brainstorming session with some of the finest young Indian managers. But before that, he took some time off for an exclusive interaction (warm-up exercise, if you will) with a five-member group of mediapersons that included rediff.com's Y Siva Sankar.

Questions on the changing face of corporate India and his new book seemed to stimulate the guru so much that he felt the need for a cigarette only once during the one-hour-long group discussion. The book's co-author, Gita Piramal, chose to listen to him in rapt attention and silence, overruling his pleas to her to "jump in and make the discussion livelier". Excerpts:

On whether a particular style of leadership can be sustained for long:

There's a chapter in the book where we talk about aligning for growth and one issue we make there is this problem that companies are inherently unstable. There is this law of gravity that always pulls you down.

Long time ago, Henry Mintzberg and I had written an article where we compared a company to a spinning top. You see a top spinning beautifully, it is wonderful, but if you don't do anything about it, the top will stop spinning and lie down. You have to continuously put energy to it, so in that sense there is no such thing as, 'Well, the company is now in good shape and it will continue forever.'

Companies to perform well need continuous renewal, continuous input of energy and therefore continuous exercise of leadership. Having said that, there are a set of trade-offs. Some companies develop a very strong sense of culture. Some are driven by leadership.

In some ways, culture and leadership are mutually reinforcing, but in some ways they are also partly complementary.

A very strong culture can survive for some period with weak leadership. A very strong leadership can overcome the pathology of a weak culture. So they are both supplementary and complementary.

Take the case of Thermax. Indeed its performance was stellar in the period of Mr Rohinton Agha. But in that stellar performance was built in a set of choices which was very much Mr Agha -- that was radical decentralisation, real belief in individual entrepreneurship and so on.

Now, though that had its plusses, its disadvantage was lack of integration, lack of co-ordination, but he built that company based on individual entrepreneurship. What held it together, the glue in some ways was he himself, he embodied the spirit of the company.

Those are very hard to continue beyond. I think, Abhay Nalvade did a terrific job trying to protect that culture -- he was a product of it, but nevertheless, there were external factors like market forces and so on.

But this is the tension that companies always face between building those that endure beyond individual or collective leadership and continuously needing the energy of individual and collective leadership.

On whether companies can create leaders:

There are two sides to it. This is perhaps the number one challenge for at least the established corporate sector in India.

Historically, we have built good functional managers: in manufacturing, marketing, whatever. But many of these companies do not have adequate supply of what I would call good general managers, those who build and run good businesses.

Part of the reason was entrepreneurship or leadership was exercised at the top. In that regime, in that experience, it made sense. It was the CEO or the chairman who went and got the licences, government loans and so on. The rest were implementers.

The real challenge of the new environment is you got to build leadership at all levels of the company. People who are entrepreneurial, who can build businesses, who can destroy businesses, and that, I think, is a huge challenge.

Having said that, is it possible? Absolutely. I will give you an example: BusinessWeek 1000 -- I think it is 1996 data -- the 1,000 largest companies in the US. And if you ask the question, 'How many of the CEOs of these 1,000 companies had anything (executive programme, MBA programme, anything) to do with the Harvard Business School?', the answer is about 11 per cent.

If you ask, 'How many of them ever in their career worked for General Electric?', and the answer is about double that. It's amazing, one company supplying this!

And this is what GE has been historically, it has been a producer of top-class management talent. For any given role in GE, there are six world-class people, including for the role of the corporate CEO.

And the argument is, if Jack Welch becomes the CEO of GE, that makes it very difficult for (Lawrence) Bossidy to become CEO of GE. Bossidy becomes the CEO of AlliedSignal (Honeywell International).

I think Hindustan Lever in India to some extent has served the same rule. It has historically built terrific managers.

And these companies more than anything else illustrate that with dedication, with commitment, over time companies can build outstanding leaders at all levels, supplying both its own needs as well as meeting the aspirations of individuals.

Let's say, 'If you do not become the CEO here, you will become a CEO somewhere else.' Which is just terrific for both the individual and the institution.

On whether Indian companies are already world-class:

What we say in the book is very consistent with the above-mentioned topic. Sometimes, you face the question, 'Well, we are in India, look at that infrastructure, look at our people, look at our rules, look at our government, look at our politicians, how can we be world-class?'

What the book says is, there are companies in India that are world-class.

So if you as a management team say, 'Aah, Jack Welch can do it in GE, or (Percy) Barnevick can do it in ABB, but we are Indians and as Indian companies we can't do anything more than that.' My answer to you would be, 'In India, if Reliance can do this, if Infosys can do this, if Sundaram Fasteners can do this, if Ranbaxy can do this, then the issue is not Indian, then the issue is you, your quality as a management team.

'If you say you can't do it, all you are saying is, we as a management team can't do it. Give up, let a new management team come in and do it for you. Don't tell me it is India; therefore, you can't do it.' That is exactly what the book says.

We say in the book, "Management is not paid to make the inevitable happen, it is paid to make happen what otherwise won't happen." In India, managers are doing it, and if any particular company management is not doing it, that management should have the wisdom to recognise its limitations, resign, or be forced to resign, so that somebody else comes in and does it.

On the Indian managers' preparedness for the WTO regime:

I see the glass half-full. The full of the half are as following: eight years ago versus today, I think there are significantly higher levels of awareness, conviction about the need for doing some of these things, and indeed efforts to make them happen. That's the half-full side.

Awareness and recognition and the ability to confront reality the way it really is, is the essential first step. If you win that battle, you've won half the battle. Many Indian companies I see today have that awareness. That is the good news.

The bad news is that we are creating two- or three-speed Indias. You go to some companies, on the hi-tech side, you go to a Wipro or an Infosys or a HCL; or you go to a Reliance, or to a Bajaj Auto, and you see one level of enthusiasm, one level of determination, one level of commitment.

At the same time, you go to some others, the situation is very different. So, that is part of what the process of creative destruction is.

Some of these companies which will not respond, will, and need to, die. And release the resources -- people, money, whatever they want, for others to build. That is the process of creative destruction.

When I see some companies heading their way towards that death, the only request I will make is, 'Don't tell me to name them.'

On sell-offs as part of corporate restructuring:

There is nothing wrong in selling off. In the context of family-owned businesses, sometimes it's perfectly all right for a family to say, 'I can't protect both my wealth and my role as management.'

In that situation, the morally and professionally right thing to do is to step out of management, give the management to an effective management team, so as to protect their wealth. The alternative is, both the company and their wealth will go.

It is not required that every company must be saved by its existing management. This is not the old story: 'The Mughals are coming, and we are the Rajputs, we must protect the fort at all costs.' It is not that situation. This is business.

If, for whatever reason you believe, you as a management team have not added the best value to the business, you must move out.

The best companies in the world do it all the time. General Electric gave up domestic appliances on the ground that for that business, Jack Welch's management team does not add the most value. Black & Decker management team could add more value. That is a pointedly good reason.

On whether Indian corporates should identify a core business and stick to it:

I don't understand this idea of core business. ABB is defined by power generation. Historically, Asea Brown Boveri's main line of business has been power generation. But some other company has exited that business. What was more core? Worldwide, General Electric was known by the GE symbol and its electric irons. They are out of that business.

The world evolves, you as a company evolve, what was core for my profession twenty years ago as a manager at Indian Oil, it didn't stay core.

Individuals evolve, this notion that 'whatever that is history we must protect it and somehow every business can be saved by us' -- I think that is exactly the mindset the management needs to overcome.

They have to be extremely selective what they will be good at, it's not an issue of just core competency, it is 'what I will be good at, what do we really want to do, what are our aspirations'.

And then, sometimes, what you had historically was core, and it needs to be given to somebody else. Not because it is bad… as they say, there is no bad business, there is only a bad fit.

If somebody else can manage that business far better, that is how industrial restructuring takes place. Any ego based on 'My grandfather built this business, I must continue doing it' is exactly where you are wasting your personal resources and other resources. Give it to those who can do it better. And don't get hung up on the old periphery: what do you want to do, what is your relation…perceive that.

On how the new book acquired its form and shape:

It has been a torturous journey. The book kind of emerged over almost a ten-year period. It started ten years ago when at the Indian Institute of Foreign Trade, I had a Unilever scholarship for a summer.

And when I came -- and there was a chair I took that summer -- that was my first professional exposure as an academic into Indian companies.

That's when I first went to Bajaj Auto, Reliance, and many of these companies that now feature in the book. That's also when I got to know the Hindustan Lever management team at that time with S M Datta as the chairman.

In fact, it ended up with my doing a two-day session with the management team and I was absolutely amazed by the quality of that management team.

I've seen good managers, good companies abroad, in the US, Europe, Japan. This team was as good as any that I have ever seen anywhere -- enthusiastic, extremely competent, the whole process was a very satisfying one.

Narayanan Vaghul and Tarun Das kind of guided me. Another person who I think played an important role is Rohinton Agha in Thermax. You have this poor image of Indian industrialists - at least I did in India. When I met with Agha, I realised he was a wonderful human being, warm, kind, generous. Later on, I met Narayana Murthy, Rahul Bajaj… these are all extremely interesting characters.

I think it is much more: these individuals and how different they were from the caricature of I had in India of the so-called industrialists. That's it. The story had to be told.

Then, of course, the circumstances arose, Gita (Piramal) and I got together, and there was another friend of ours, Sudeep, who kind of came in a coincidental set of factors.

I think one element that had a very important role was Kumar Mangalam Birla. He was an alumni of the London Business School, and created the Aditya V Birla India Centre.

I happened to take up a role as its director, so we had to do some research. So it was all of these on the one hand and the pull of some of these absolutely magnificent men -- there were no women in that list -- a certain group of good friends getting together, 'Let's do this'; and third, the impetus that came from the Aditya Birla India Centre that combined to do this work, and finally, we wrote the book.

On how long it took to write the book:

We actually did a fairly large number of cases. If you understand our research methodology, we are essentially tellers of the tale.

We don't start with any given theory, our objective is to understand practice and then looking up practice, compare across the practice of that number of companies to say, 'What are we learning? What is working in practice, what can we say that can be useful to managers?'

The purpose is, unembarrassedly, to be useful to practice of managers, that is all. That is our role.

But that requires a fair number of different contexts. Just looking at three software companies or an FMCG company and saying that maybe we should do that -- doesn't really work that way sometimes.

In some ways, it is all not manifest in the book, but behind the book lie a number of stories. But we actually did the field interviews. As it happens, not all the cases got cleared. Much of the work you actually did, which we learn from but could not use for one reason or another, the confidentiality was not cleared....

How much time did it take? At one level, it is a ten-year story because the first cases, on Reliance and Wipro, were written nine years ago. The last cases, on Hero Honda or HDFC, were written one-and-a-half years ago.

So, over the period, gradually, the stories accumulated, but the real work, I think, was done in the last four years.

Serious work began after Gita, Sudeep and I got together. We had started the structured work since the last three years, when the bulk of the work was done.

SEE ALSO:

Oct 18, 2000: 'ISB will help shape the visions of aspiring management students'

Oct 17, 2000: Bombay Dyeing episode is a good incident, says guru Ghoshal

Sep 29, 2000: Sumantra Ghoshal is founding dean of Indian School of Business

December 20, 1999: AP begins work on dream b-school

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