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Wharton guru on why bosses don't change

By Manali Rohinesh, Moneycontrol.com
June 19, 2006 16:59 IST

Times change and moving ahead in the race means having to adapt to the new environment. Businesses go through this periodically and those who accept new ideas and adapt accordingly are the ones who won't be left behind.

So apart from changing strategies that affect customers, a real shakedown would involve the organisational architecture as well. These could work out to be a cheaper alternative in the long run rather than have systems which are outdated and due to which the organisation lags behind its peers.

As professor of marketing at Wharton School Yoram Jerry Wind told CNBC-TV18, "You have to create a corporate culture that questions how to change the structure, how do you change business processes, what type of competencies do you need, what type of people do you need, what resources do you need."

"Furthermore, if you are going in for re-invention of an organization with objectives like doubling revenues and profits in three years or something like that, it is obvious that you cannot continue doing this the old way. So you have to look at new ways of doing it, and this typically leads companies to look for better and more efficient, cheaper and better and faster way of doing things. So it is not always more expensive, depending on the way you do it."

But the reluctance to let go of tried and tested methods is the reason why managements don't want to change. Management consultant Rama Bijapurkar agrees. "I think it's less to do with discarding infrastructure and brand investment, it's more to do with discarding knowledge or conventional wisdom because when you move away, everybody knows that this is the way the world works, you have to have a very clear and proven alternate view of the market and when you don't have an alternate view of the market then your tendency is to stay with the safe."

It also may be a little too premature to dismiss infrastructure lightly. Wind explained, "I don't think we can underestimate the importance of infrastructure. It can be an incredible obstacle to change. For example, CI Investments went through a series of changes, and they realized they had to change the entire workforce environment. They changed the structure of the buildings, they created new areas, they eliminated secretaries, they eliminated a whole variety of process teams so infrastructure is a very important component that we have to take into account when we are thinking about how do we go about implementing the new mental model. But the point that Rama made in terms of importance knowing where you want to go - that is absolutely critical. That is the heart of everything we are talking about in terms of "how do you know that your mental model is not correct?" and you have to change it."

On the other hand, Indian companies are noticing the changes and it's not like it's slipping them by. Bijapurkar elaborated, "I see them (Indian corporates) being uncomfortable in their guts. That this is not the best way to do it. For example, I see a lot of debates like -- 'should we be classy, defined as high margin, high tech, high everything or not?' And, I think that what companies do is hope that somebody else does it, which usually they don't do because that somebody is the market leader who has no incentive to change whatsoever. So I am saying there is a lot of panic right now, panic that is not necessarily translated into action no matter which sector you look at."

Sometimes it's merely lack of courage and as well as the incentive system in place that deters companies from making any move. They don't want to make any short term changes and so put off making any changes altogether. Also huge financial disasters frighten them.

But Wind said, "You can take examples of disasters such as the Times Warner-AOL one -- probably one of the largest in history with a $100 billion write-off and the Street accepted it. This is one of those interesting things because they had a very visionary strategy -- the integration of the two companies."

"It was similar to the earlier attempt of Sony acquiring Columbia Pictures, in this case, the hardware and the software. In the case of Time Warner-AOL, it was new technology with the old established media and the premise of this success was that they were able to provide an unbelievable package to advertisers."

But what happened was that the dot-com bubble collapsed. After 9/11, the advertising market basically eroded completely and the environment changed in the way they could not. Then to augment this, was the dramatically different corporate culture between the two and this proposed integration was a disaster. They were just not able to integrate, which is again going back to the infrastructure -- 'how do you make it happen?' You have a great vision but how do you make it happen?'"

It's also important for second and third rung companies to lead the way because typically the big market leaders could be slower off the block to anticipate or even initiate change.

Sometimes, stakeholders are the most resistant to dismantling these old processes but investors could be the instrument of change.

Bijapurkar explained, "I find that often investors are saying, 'For God's sake, can you stop going -- what we say QSQT, i.e. quarter se quarter tak.' Can you not do it? Can you give us a longer growth story? But I think with the stakeholders, it's more like a conservative camp. Sometimes the CEO is conservative, sometimes he is the liberal one and the board is conservative. Sometimes it is just the people in the organizations. They actually refuse to move no matter what the incentive is."

Wind elaborated, "We found out that the major obstacle is the top management itself and when you have an enlightened top management, very often it's the middle management who is going to be affected the most. They are the ones who are going to resist because they are the ones who are going to be buried in most of the changes and they tend to resist, and that's a major problem."

"In the United States, there is an easy solution to the problem which is virgin acquisition. They basically perceive that we (the 2,3,4 companies) are not successful because we are smaller, so let us become bigger and acquire -- 2 & 3 will merge together and become bigger and they will fight yesterday's war as opposed to try and look forward. So, typically you have issues of integration and then you let the successor worry about what will happen later on. That is why most mergers fail in the long run."

In India, foreign companies buying out Indian companies have not worked. Bijapurkar agrees with Wind and said, "It's a bit like what Jerry says, they come together for a set of reasons and then they play the game exactly the way the big guy would but when you have three pieces (players) who together want to play the game like one big piece, it is always bound to fail. I mean I always wonder why don't we have a model that is a competitive model, when three pharmaceutical companies come together and do joint R&D and take on the world? A model that says the enemy is out there."

But with MNCs getting into India, their tripping over one factor and that is perceiving India as a homogeneous market. Bijapurkar agrees, "In fact I have been asked, 'Why do we need a Rolls Royce approach to segment a market as tiny as this?' because the mental model they come with is segmentation is for complicated markets which have a lot of value and uniformity is for smaller markets."

"The fact is that this market has the strategic complexity way in excess of its current market worth and I think the degree of heterogeneity from the poorest to the richest is in a way mind-boggling, only because you have nuclear warheads and you have illiterate people. You flag off the nuclear warhead with a coconut and welcome a computer with a bindi."

"MNCs are ruthlessly saying that my target is India, but then I think they have trouble dealing with India because they do spreadsheet calisthenics, like if one billion people eat half a gram of pasta a day, I'll have a market four times the size of Argentina. That is the mental model they come with, the spreadsheet calisthenic model."

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Manali Rohinesh, Moneycontrol.com
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