NOTES FROM THE BOOK MANAGING RADICAL CHANGE BY SUMANTRA GHOSHAL, GITA PIRAMAL ANDC.A.

BARTLETTi Publisher:PenguinBooks,2002edition Contents: Part1::Thechallengesofradicalperformanceimprovement Chapter1:RADICALPERFORMANCEIMPROVEMENTIsPOSSIBLE Chapter2:Learningtocooksweetandsour Chapter3:INTOTHEVALLEYOFDEATH PartII:Shapingandmanagingfuture Chapter4:Thethreestagesofcompetition Chapter5:Aligningforgrowth

1. 2. 3. 4. 5.

6. Chapter6:Managingacquisitiveexpansion 7. Chapter7:DiversificationandDiversifact 8. Chapter8:Goingglobal PartIII:RevitalizingPeople,OrganizationandRelationship 9. Capter9:Changingthesmelloftheplace 10. Chapter10:TheCompanyasaUniversity 11. Chapter11:BuildinganentrepreneurialOrganization 12. Chapter12:Newmanagementrolesandtask 13. Chapter13:Buildingshareddestinyrelationships PartIV:Transformingmanifestoforleadership 14. Chapter14:Anewmanifestoforleadership Part1::Thechallengesofradicalperformanceimprovement
1. SATISFACTORYUNDERPERFORMANCE Itisapervasivediseaseconfrontedincompaniesallovertheworld.Itisadiseasethatiseasy tocatch,findingawaytoavoidisdifficult. Often their competitive strength erodes rapidly. The company continues to make money becauseofalltheresourcesthatithas,intermsofanestablishedcustomerbase,ahistorically developeddistributionchannel,strongbrands,andsoon.Alltheseresourceswouldhavebeen builtbyearliergenerationofmanagers,yettheincumbentmanagementtakescreditforallthe returnstheseresourcesgenerate,neveraskingquestions..Whatarewedoingtoaddvalue? The crisis ultimately comes, but before the crisis hits there is often a long period when the company can coast along in a state of satisfactory underperformance, assigning all uncomfortablesignstofactorsintheexternalenvironment,beyondmanagementcontrolsand

findingrationalizationononehandandreducingambitionontheotherhand,soastomaintain satisfactioninthefaceofdecliningfortunes. 2. Chapter1:RADICALPERFORMANCEIMPROVEMENTISPOSSIBLE This is the first and essential prerequisite for creating and managing change. Senior manager havetodevelopthebeliefthatradicalchangeispossible. It is certainly possible for small and medium sized firms, but it is also possible for large and established companies. And it is possible such nonincremental improvements within a reasonablyshortperiodoftimenotaquarterorevenayearbutnottenyearseither. Thereisareligioninthefieldofmanagement,itiscalledincrementalism.Itisbasedonthe belief that everything in companies happen slowly and incrementally. It comes with it own ritualsandmetaphors,likeanalogyofsupertankers.Supertankersturnslowlyinlongturning circles. Dettoforcompanies, particularlylargecompanieswiththousands ofemployees . You cantpushthemtoomuchtoofast.Youhavetohavepatience,youhavetobepragmatic.Inbig companiesthingssimplydonothappenthatquickly. TherearethoseDhirubhaiAmbaniatRelianceforexamplewhohaveneverbelievedinthis religion but most Indian managers practice them knowingly or unknowingly. They have been broughtupinaneraofcrippling regulations, beauracratic dominance,and poorsystemsand infrastructureswhenthetenetsofthisreligiontendedtobevalidmostofthetime.Thisishow theygotconvertedtothisfaith. A) Highperformanceincompaniesexistinunattractiveindustriese.g.IspatInternational. B) Acompanycanachieveoutstandingperformanceevenitsindustryissinkinge.g.Richards& Sheffield,HastingsJuteMills. C) Outstandingperformancecanbeachievedevencompetitorsaremuchbiggerandstronger e.g.XeroxversusCanon. D) Radical performance improvement is possible even when you are already very successful e.g.GE,HindustanLever. E) Charismatic leadership is not a prerequisite for radical performance improvement e.g. NarayanMurthyandDeSimonof3M. Chapter2:Learningtocooksweetandsour In1993IndianOxygenwashailedasoneofthebiggercomebackstoriesoftheIndianCorporate in recent times. The company had rationalized its portfolio, selling if the electrode business restructureditsmanufacturingbase,closinganumberofinefficientplantsandreplacingthem withafewhighscaleunitswithsubstantiallylowercoststructure,reducingitsworkforcefrom 5400in1989to2100in1993.ThecompanysprofitsjumpedfromRs25Lakhsin1990toRs705 Lakhsin1993,enhancingitsmarketvaluefromRs45CrorestoRs480Crores.

 FiveyearslaterthemarketvaluewasdownagaintoRs191Crores.Sowhatwentwrong?The companyhadlearnttocut,torestructure,torationalizebutithadnotlearnttogrow.Asaresult despitecontrolledbudgets,squeezedcostsandimprovedproductivity,itlackedtheenergyand courage required for creating and exploiting new opportunities. It got caught in a dangerous negativespiraleverycostcutledtoatemporaryimprovementbutultimatelyonlycreatedthe needforanothercut. Theunderlyinglessonisbothsimpleandrational.Sustainedsuperiorcorporateperformanceis basedontheabilitytomanagethetensionbetweentwosymbioticforces.Theneedforongoing improvementinoperationalperformanceandproductivitythroughconstantrationalizationin existingactivitiesandtheneedforgrowthandexpansionthroughcontinuousrevitalizationof strategyorganizationandpeople. The problem is that most managers see the process of rationalization and revitalization as mutually exclusive. Rationalization is often unpleasant Sour. Few managers enjoy closing plants, selling businesses, sacking people. Revitalization on the other hand is Sweet. Most managerslovegrowth,theylovedreamingupavisionanddrivingtheirorganizationtomatch theirdreams.Andmostgoforeitheroneortheother,hopingtoeithercutorgrowintothehigh performanceleague. The continuous rationalizationprocess provides the resources, including money andpeople, neededforgrowth,andthecontinuousrevitalizationprocessgeneratesthehopeandenergy required to sustain the grueling challenge of relentless productivity improvement. Growth without productivity improvement is like building castles on sand. Most companies cook only souroronlysweet,sustainedsuperiorperformancerequiresamanagementthathaslearntto dotheboth. A. Creatinggrowthopportunitiescookingsweet Downwardspiralofrationalization Poorperformance Cutresource,sellbusiness,closefactories,sackpeople Temporaryimprovementinresults Underlyingproblemnotsolved Performancedeclinedagain Cutagain

e.g.WastingHouseisnonexistenttoday. B. CookingsweetandsourforBajajAuto InviewoftheseverecompetitionfromHonda,Suzuki,Piaggo:BajajAutowhichwasalreadythelowest costproducerintheworldchangeditsstrategy. ThemindsetofBajajAutowasthatonceweintroducedaproductthepeoplebuyinvolumes.In1980, RahulBajajhadsaidMymarketingdepartment?Idontrequireit.Ihaveadispatchdepartment. In1998,theyaddedvarieties,fundedtheinvestmentsrequiredfornewtechnologiesandequipmentsas wellastomeettheenhancedneedformarketingbroadenedtheproductportfolio.Atthesametimea numberofprogrammesforradicallyreducingthecostweretaken.AnewagreementwhichShivSena controlled union led to a mutual commitment for 810% productivity improvement per annum. In exchangeforsignificantincreasetheemployeespayandfacilities. Between 1995 and 1998, the company achieved a remarkable 38% improvement in the number of vehiclesproducedperemployee. VirtuousSpiralofprofitablegrowth Growprofitability Generateinternalcashforgrowth Increasefinancialdegreeoffreedom Increaseabilitytosupportgrowththatisinvestmentpotentialandstrategicfreedom Increaseattractivenesstoinvestors Viciousspiralofunprofitablegrowth Growunprofitability Increasedebttogeneratecash Decreasefinancialdegreeoffreedom Decreaseabilitytosupportgrowth

 Decreaseattractivenesstoinvestors 3. Chapter3:INTOTHEVALLEYOFDEATH All our metaphors of transformational change are highly romantic. From a caterpillar to butterflysoundsandfeelssogood.Fromanuglyblackcaterpillartoabright,colorfulbutterfly thesymboloffantasy,ofloveofgoodcheer!Butimaginewhatishappeningtothecaterpillar asitgoesthroughthismetamorphosis.Firstitgoesblind.Thenitsarmandlegsfalloff.Finally, itsbodysplitsopen,toallowitsbeautifulwingstoemerge.Thinkofthefearandthepainitgoes throughwhichcaterpillar,willinglyofitsownvolition,willsignupfortransformation? Precisely,thesameistrueofcorporatetransformation.Theprocessoftransformationalchange involves a greatdealoffear,andintensepain.Thatis whyitissomucheasiertotalk about transformationthanitistogothroughtheprocess. Many Indian top level managers have picked up the rhetoric of corporate transformation. In thecurrentcontextofrapideconomic,technologicalandcompetitivechange,morethat,afew of them do require radical change in strategy, organization and culture to prosper, perhaps even to survive. But, most of these managers have only an intellectual understanding of the changesthatarenecessarytheyhavenoexperienceoftheemotionalrollercoasterthatsuch transformational processes involve. To lead such change, they have to manage both the intellectualandtheemotionalaspects.Thelatterbyfarthemoredifficultandmoredraining. Transformationalchangeisajourneythroughthevalleyofdeath.Indifferentphasesofthe journey, the organization will experience some very different kind of emotions from complacence,denial,fingerpointing,resistance,throughangeranddepressiontoexploration, enthusiasmandcommitment.Toleadajourneythroughthis,toplevelmanagersmustlearnto anticipatetheseemotionsandhavethecourageandthewisdomtocopewiththem.Ateach phase, the leadership task is very different and the role the leaders play must, therefore, radicallychangeinthecourseofthejourney. As a discussion about transformational change first enter the agenda of a company, most managersfeelenergized.Itisaheadyfeelingofmachismoandtheillustrationsonlyaddtothe excitement.Thisisthecomplacencystage,theeuphoriaoftheignorant. Then,asthebenchmarkingprocessrevealsdeepgapsbetweenthecompanyscapabilitiesand performance and those of its best in class rivals, the complacency (satisfied with one self or onesachievement)giveswaytorationalizationanddenial.Thenasthetruthofperformance gapbecomesimpossibletodeny,valiantrationalizationensues.

Astheselayersofrationalizationgraduallymeltawayandtheobviousconclusionofmanagerial mediocritystarespeopleintheface,denialgiveswaytofingerpointing. As deeper analysis begins to show that the gaps are indeed pervasive the outburst finally happens.Seniormanagerstendtoleadthisoutburst.Longusedtothedeferenceandadulation appropriateforthesizeoftheirchambersandexposedforthefirsttimetotherealityoftheir feeblecontributionsandmanifestmanagerialineffectiveness,angerbecomestheirsoledefense mechanism. Leadersstrongenoughtopushtheorganizationbeyondthestageofoutburstfinallyarriveat the lowest point of the valley depression. The toughest phase to plough through, this, however,isalsothefirstsightoftheendofthetunnel. Persist beyond the downing of tools, and you begin to get the first glimpse of exploration, of curiosity,ofessenceofpossibility.Noteverythingisreallyrotten.Therearenuggetsofhighclass resource in the company, of strong competencies and interesting opportunities. As a few instancesofsuccessfulchangebegintofilterthrough,atleastsomepeoplebegintobelievein thepromisesofafuture. Nurture thesebelieves, support and celebrate these successes, and gradually theenergy will riseagain.Curiosityaboutthefuturewillleadtocommitmentandthesenseofpossibilitieswill expand intotheexcitementofcreation.Gradually, thebutterflywill emerge,and willlearn to fly. A. Changeversustransformation Not all companies need transformation. In a context of changing economic and social landscape,mostcompaniesmusthavethecapacitytoevolveandchange.Butincremental changeisdifferentfromtransformation.Typically,companiesneedtorealignsomeaspect oftheirstrategy,organizationorculture,whileretainingtheothers.Thatischange. Transformationincontrast,isthesystematicandsimultaneousattackacrossmanyfronts thatfundamentallyaltersthebasicrhythmandcharacterofacompany. There are a handful of companies in India that have faced severe crisis and have worked theirwayoutofit.Inthatprocess,theyhavetakenalotofpain,oftenwithgreatcourage andgrit. B. Leadingthetransformationprocess Managers of troubled companies have three alternatives to choose from. First, they can denytheneedfortransformationandcontinuewithbusinessasusual.Atsomepoint,the

companywillfallofftheprecipicebutthistheyhope,willbeaftertheirtime.Theirsecond opinionistogatherupthecouragetoinitiatorthetransformationtheprocessandtolive throughthistrauma.Eveniftheysucceed,theywill,inalllikelihood,bedeeplyscarredby thatexperience.Orthelastalternativetheycanstepoutnowandallowsomeoneelse withmorecourageandgritthanthemtotakeonthemantelofleadershipandinitiatethe journeyintothevalleyofdeath. What makes matter even worse is the different key individuals and different parts of the companywillgothroughthisemotionaljourneyatdifferentspeeds.Therewillbeafewwho willavoidthevalleyandgostraighttotheexcitementandcommitment.Therewillbeothers whowillnotrecovertheywillplungeintodespairandtheonlyactofmercywillputthem out of their misery as gently as possible. Most groups will go through some of all these phases,butnotinsynch. Ateachphase,thetaskofleadershipisverydifferent.Intheearlypartofthejourneyin thecomplacenceanddenialphasesleadersmustbebrutalintheirchallenge.Theymust confront with information, project the consequences of business as usual, and provide illustrationsoftheseconsequences.Thisisthephaseinwhichcomparativedatacompetitor bench marks, internal employee feedback and customer satisfaction surveys, e.g. are essentialtoruthlesslyexposethetruth.Thetaskofmakingagroupofcomplacentmanagers confronttherealitiesofthecompanies,mediocrityneedsaheavyhand.Firstofall,inthis phase,theleadersmustalsoconfrontandpubliclyacknowledgetheirownfailures.After all,theymorethananyoneelseinthecompanymusttakemostoftheblameforthepast inertiathathasleadtotheneedfortransformation. In the next phases of anger and depression, however, a heavy hand will merely destroy. Theneed,inthisphase,isforempathy,understanding,anda collectivesharingofgrief. Theleadersmustlearntolisten,notonlytowhatisbeingsaid,butalsotowhatisnotbeing said. They need to show personal commitment. And, ofcourse, this is also the period of mercykillingtheymustcutlosseswhenunavoidable. As the organization turns the corner into the first signs of curiosity and exploration the symptoms change. Downi ng the tools gives way to overpreparation, the feeling that the companydoesnotcareisreplacedbyincoherentenergy.Thereistheconfusionofmultiple initiatives, the chaos of diverse projects and divergent local leadership. At this stage, the taskoftopmanagementchangestooneofguidingpriorities,ofeducatingtoimprovethe qualityofanalysis,ofpresentingshorttermgoalstodirecttheprocess. Finally,asthebutterflyemerges,theroleofleadershipevolvesintosettinglongtermsgoals andofrebuildingteamsandtrust.Gradually,thosewhohaveleadtheprocesssofarmust step back from the frontline, letting others take on visible leadership roles while they

retreatintothebackgroundroleofembodyingandprojectingthevisionandvaluesofthe companyandcoachingthenewleaderstoplaythenewroles. PHASE SYMPTOMS LEADERSHIPROLES Denial Rationalization Confront with information Focusonthepast Project Withdrawal consequences of Withdrawal businessasusual Provideillustrations Resistance Anger,blame Listentowhatissaid andnotsaid Downingoftools Sharedmourning Thecompanydoesnot care Show personal commitment Cut losses when unavoidable Exploration Overpreparation Guidepriorities Incoherentenergy Educate to improve qualityofanalysis Confusion,chaos Setshorttermgoals Commitment Cooperation and co Setlongtermgoals ordination Celebratesuccess Frustration about Focus on team speed building Looking for new Step back let the challenges next tier of leadershipemerge PartII:Shapingandmanagingfuture Chapter4:Thethreestagesofcompetition 1. CompetitionfromMarkets:Itstartswithastructuralanalysisoftheindustry,basedon adetailedevaluationoftherelativepowersofthesupplierandcustomers,todiagnose thedynamicsofprofitabilityandtoidentifythedifferentstrategicsegments.Thereis needtocoalignfunctionalstrategies:alowcoststrategy,marketingandfinancing. Reliancewinsinthemarketplaceeverytimebecausecustomersliketobuyitsproducts. ThecontinuingcapacitygrowthallowedReliancetoemergeasthelowestcostpolyester producer in the world, it was 18 cents per pound against 28 cents approx internationally. 2. Competition for competencies : the competition for resources and capabilities. Reliancesstrategy workedinasetofcompetenciese.g.itsprojectmanagementskills are unsurpassed (careful planning to quantify tasks and then saturating tasks with

resources) and among the best in the world, in mobilizing large amount of low cost finance,companiesremarkableoperatingefficiencies 3. Competitionfordreams:DhirubhaiAmbanihadwithShellatEdenandtherehedreamt ofcreatingacompanylikeShell,toexploreforoil,refineitandsellallovertheworld. The dreams was backed up with enormous courage and faith . His first foray was backward integration from textiles to polyester filament yarn. His two well educated sons Anil and Mukesh had fire in belly and used to say kuch kar ke dikhana hai. Strategy by definition, requires distinctiveness , it is about being different. Strategic innovations come about when a company often lacking the resources and capability thataredemandedbytheindustryreceipefindsawaytocreateanewbusinesssystem byusingwhatithas. 4. FromFrameworktoAction:AsperMichelPortarcarefulanalysisofcoststructuresand customerneedsremainvitaltoarriveatcostleadership.Makehonestassessmentof companys resources (such as brands, facilities, distribution infrastructure, etc) brand building, project management, new product development. The challenge would lie in beinginsightful,creativeyetlogicalanddisciplinedenoughtothesekeyresourcesand strengths. Next step 2 review your business with quick analysis of the market to evaluateyourpositionvisavisthosekeycompetitors.Trytoasseswheretheindustry isgoing,howdifferentsegmentsevolving.Instep3 reviewwhatnewbusinessesand opportunities can you exploit on the strength of your existing competencies. This is essence of successful diversification. Finally review the needs for improving your strategicarchitectureanddecideonnewbusinessesrequiringcompetenciesthatyoudo not have. Now, test the vision , arrived at through a creative process. Try to find a coherentapatternthatwouldlinkyourvisionandstrategythrougheachofthesethree stagesofcompetition. Chapter5:Aligningforgrowth Nowwemayfocusonimplementation;onwhattheyneedtodointernallytofacilitate the growth process. To manage sustainable growth , a company needs to create an effectivealignmentamongthreekeyelements:itsvaluecreationlogic,itsorganizing principlesanditspeopleprocesses. ValueCreationLogic:Valuecreationisallaboututilityandfunctionalityandrefersto those the company serves, rather than to those who own. Create value through continuous innovation, maintaining profitability and growth by developing and introducingnewproducts,throughoperationalexcellence,backedbyhighqualityand highefficiencyplantsandinfrastructures,bybuildingcloserelationshipswithcustomers ,providingtailormadesolutionsthatuniquelymeetindividualcustomerneeds OrganizingPrinciples:Thechoicesforthecompanymaybefollowing 1. Autonomy versus Synergy: principle is nauncing trade off between autonomy and synergy.

2. Control versus initiative: planning is essentially an exercise in disaggregation; it decomposestheorganizationintocomponentpartssoastoaggregateuptothewhole .Adaptingontheotherhand,islessamenabletosuchdisaggregation,itdealsinideas andperspectives 3.LeadershipversusCulture:Strongleadershipcanpartiallymakeupforaweakculture holding the company together by the sheer force of its ideas and will and strong culture established beliefs , deeply rooted traditions can sometimes sustain a companythroughperiodsofweakleadership..Buttheseforcesactoneachothertoo. Turnaroundismostdifficultincompaniesthatstagnatewithstrongculture.Leadership andculturemustcomplementeachother.HDFChasdevelopedawonderfulsymbiosis betweenstrongleadershipandapowerfulculturebasedonwellenhancedsetofcore values.ThegrowthofHDFChasbeendrivenbytheinitiativeandentrepreneurshipofits front line employees and they have been granted exception levels of autonomy and large responsibilities much earlier in their careers compared to other financial institutions. PeopleProcesses: Tocompeteonhumancapital,managershavetofocusonallaspectsofhumanresource management system e.g. Recruitment, development, compensation, career planning andperformancemanagement.JackWelchofGE,committedhugeresourcestocreate worlds best training anddevelopment facility. What reliance values and looks for the capacitiesforentrepreneurship,risktakingandthewilltowin. Thefailureofsuccess:Tocreateaeffectivegrowthpath,acompanyneedstoaligna clear value creation logic with its organizing principles and people processes. The danger arises when the environment changes , and historical valuecreation logic becomesinvalid.Overtimethecompanybecomesvictimofitspastsuccess.Thegreater the past success , the tighter the links between a companys value creation logic , organizingprinciplesandpeopleprocesses. Combining alignment withevolution:To successfully grow , a company must align its strategy ,organization and people processes.In a dynamic environment , no success formula can last for ever . A key challenge for top management in creating growth opportunities in turbulent and highly competitive environments is to continuously remain alert to the problem of ossification (cease developing), and to challenge the organizationintochangingthestrategyorganizationpeopleconfigurationwithchanges in the external environmental demands, e.g. Infosys did it.In first ten years its seven founderslivedveryfrugally(economically)abroad,onlessthan$500amonth,saving rest for the company and since 1991 it pioneered concept of offshore software developmentcentersinBangalore.Infosysrecruitedpeoplewithhighlearnability,not always from IIT/IIMs. Its young workforce with middle class values started this organization to reflect these values of honesty, transparency and high ethical standards. The core value of modesty was constantly reinforced through behavior of seniormanagementteam.Insoftwarebusiness,peoplewereultimatecommodityand theonlydiscriminatorincommoditybusinessisprice.Acostbasedmodelofsoftware

development was best supported by a technologically adequately , culturally homogeneous and highly disciplined professional workforce. A value based model wouldcontinuetoneedthatstrength,butwouldalsorequireintellectualleadershipand entrepreneurship at least at the front end. In structural terms Infosys has already created Proximity development centers around the world, to build and support close relationshipwithlocalcustomers

Chapter6:Managingacquisitiveexpansion Electroluxs dramatic transformation was an aggressive expansion , between 1962 and 1988, it made over 200 acquisitions in 40 countries. In India Ajay PiramalacquiredNicholasLaboratoriesandincreasedrevenuefromRs19Crto 543Cr.MrLaksmiNiwasMittalhasspectacularlyexpandedthecompanyfroma wire rod manufacturer in Indonesia to the fourth largest steel producer in the world. 1. Thepostacquisitionintegrationprocess,example The story of Ispat Mexicana (Imexsa) is good example how actions changed fromlossmakingunittoworldscheapeststeelmaker.AsperMrLNMIttalwe sat down with each of departments to understand their problems and view points and together we set very aggressive targets based on international standards.Ifthemanagementofacquiredcompanyiswillingtocommittothese targets,theystayotherwisetheytogo. Adailymeetingofheadsofeachdepartmentwasinstitutedafterthedayshift endedat5pmandgenerallyranuntil9or10pm.Theideaofthemeetwasto cutredtapeandasameansofcoordinatingandresolvingdaytodayproblems
andtotakedecisionthenandthere.Onceweagreedontherightthingstodo,itwas easy to get approval of CEO and any resources you need . But you had to commit to improvementshowmuchandbywhen.Costaccountingsystemchangedfrommonthly reporting tpo daily reporting system , which provided over all figures for each days operationsbynextmorning. Quality improvement programs were undertaken leading to winning many internationalawards.Forcontinuousimprovementtheyintroducedbenchmarking,Top 10s and internal agreements. In the top 10 programme , each department identified projects to either costs or improvequality, quantifiedeach projects financial impact , andrankorderedtheprojectsfromonetotenbasedontheirbottomline.eachproject was assigned to a project owner charged with selecting a multidisciplinary team to quantify the benefits of the project, develop an action plan and monitor progress againstagreedprocessmilestones Knowledgeintegrationprogram:KIPhadfewrepresentativesfromeachoperatingand stafffunctiontomeettwiceayear,whichlastedtwotofourdaysandrotateamongthe plants

Stretch Goals annual meeting for production volume, productivity and costs: lot of questionsareaskedontheplansthatwerepresentede.g.youachievedthislevellast year , why can not you do it again?They can achieve the level the level at another factory , what prevents you from doing the same? What can we can do to help you achieve more? At the end of such discussions , while targets were demanding , they wereownedbythedepartmentsinsteadofbeingcoercedfromabove 2. A blue print for managing acquisitions : includes preacquisition negotiation process and three phases of post integration process , phase 1 cleaning up and buildingfoundation,phase2strategicandorganizationrevitalization,integrationof peopleandoperations(throughERPetc) Chapter7:Diversificationanddiversifact 1. Managing integrated diversity: This is an organization that combines three key functions(i) strong, entrepreneurial business units , with their own resources and capabilities, managed with high levels of strategic and operational autonomy (ii)

rich, horizontal flows of knowledge , best practices and other resources across those unitsi in an environment of mutual trust; and (iii) a corporate engine that creates and maintains an exciting sense of purpose a shared ambition, a set of values and sense of identitywhich acts as the glueto integratetheorganizationalidentity.
2. Casestudy:ManagingdiversityatWIPRO Wipro Corporation was split in 1990 into eight minicompanies , each with its separate equity in consumer products, lighting, fluid power, financial services, infotech and IT systems, Wipro GE, Biomed. As per Mr Azim Premji, Founder described it as a diversified integrated corporation. The integration is achieved throughasetofsharedbeliefsandleadershipvalues;throughpeople;andthrough awelldefinedmanagementprocesses. (i) Integration through shared beliefs and leadership values: Premji in 1973 articulatedasetofbeliefsthatsincethenhavegovernedthemanagement of Wipro, which provides a common cause and a sense of purpose across thebusinesses.Wiprobeliefsare Respectfortheindividual.Peopleareourbiggestasset Achieveandmaintainapositionofleadershipineachofthebusinesseswe arein Persuealltaskstoaccomplishtheminasuperiormanner Governindividualandcompanyrelationshipswiththehigheststandardsof conductandintegrity Beclosetothecustomerinaction,exampleandspirit,andensuresuperior qualityproductsandservices(addedin1982) Measure our effectiveness by long term profits we achieve for our enterprise

(ii)

(iii)

Conceptuallyinthepyramidofwiprosmanagementpractices,beliefsare atthetop,fromthemflowfiveyeargoals,threeyear/annualobjectivesfor the corporation and business units, departmental objectives, individual position objectives. If any deal requires practices that compromise their integrity,theywill notdoit.They haveblacklisteda numberofcustomers who seek favors while entering into business deal. Every Wipro issues noticestothirtyfortyemployeessuspectedtobeshortinintegrityfrontand many are sacked. Allthe employees are Wipro Leaders. The company had articulatedasetofWiproleadershipqualities.Allemployeeswereexpected topossesoracquirethesequalities Integration through people: Wipro had a strong , powerful team of professionals, recognizing, developing and supporting talented executives. Culturewasopenandsharingone IntegrationthroughmanagementProcesses:Wiprocorporateofficepowers andresponsibilitieswere a) Settings: Beliefs, goals and policies, select plan drivers,and other standardsofmeasurements b) Approving:Plansandbudgets,appointmentatmiddlemanagementand above, employee salary structures, benefits and incentive plans, appointment of advertising agencies, interaction with government on keypolicyissues,charityandothercontributions c) Responsibility for: selecting statutory auditors and counsel, corporate auditacrossthecorporation Each business prepares its own business plan for the year . One of its strengthisitsstrongplanningandreviewculture.Monthlyreviewsarewith theChairmanandquarterlyreviewswithcorporateexecutivecouncil.Each businessisrequiredtodefinekeyresultobjectives(KRO)fortheyear,which isrestrictedtosix.Outofsixcorporateofficehasdefinedfourviz.speedand customersatisfactionandwerevalidfornextfiveyears.Eachbusinesswas expectedtoreduceallcurrentcycletimeby20%eachyearandincreaseby fivepointseachyearby5pointseachyearthewhoratedWiprooveralla 5and4ina1to5points.Othertwovariablesdefinedbycorporateoffice ,individual businesses had to define employee morale( through employee perception survey, attrition rates and internal growth) and were financial objectivesweretocoverSales,salesgrowthandmarketshare,profitbefore tax, cash flow, return on average equity( say 29%), and return on capital employed(say 22%), additionally debtequity norm for each businesses. At WFS,forinstanceD/Eratiowas6:1,eventhoughthecompanyisentitled for 10:1.In 1994 to change mindset PRIDE program was launched.PRIDE acronym stands for Productivity improvement, a responsive organization,

involved people,by driving change and empowering them, is a method of problemresolution iv) L everaging opportunities: The attitude to diversification varies from management to management. There is a lesson for family groups. In extensively diversified family groups, splits and divorces are automatically broughtinfocus

Chapter8:GoingGlobal Going global is an extremely difficult and challenging process, it is not impossible for small companies from developing economies to succeed in global market. Acer grew from a tiny startup electronics consulting company in Taiwan to become number 2 personal computer manufacturer.Brazilswaghasemergedasthefifthlargestproducerofelectricmotorsinthe world., with operations in fifty one countries. There are many more such examples. The globalizationstrategiesofthese companies shareonecommon characteristic:they haveseen globalization not in terms of expanding their market , but alsoand more so as a learning opportunitythatwouldimprovetheiroverallcompetitivenessbymovingupinvaluecurve. Movingupthevaluecurve:Thevaluecurveisasimplebutpowerfulconceptthathasbroad applications across a variety of industries . Almost any business consists of a hierarchy of product market segments each of which generates profits roughly in proportion to the technicaland/ormarketingcomplexityofthesegment.CasestudyofRabaxypharmaceuticals isfollowing:Whenitfirstbrokeintotheglobalmarketplacebyproducingandsellingthebulk substances and intermediates that defined the bottom end of pharmaceutical value curve, gross margins were 510%. It first made the leap to commodities generics, then branded generics,bothmuchtougherglobalbusinessesthatrequiredthedevelopmentofnewcustomer relationships,differentdistributionchannels,andeventuallyastrongbrandimage.Discovering newdrugswheremarginsof100%ormoreareavailable.Itinvested46%revenueinR&D. The same phenomenon of a value curve also exists in the IT services, where successes of an companieslikeInfosys,WiproandTCSwillbeshortlivedunlesstheytoo,likeRanbaxy,make determinedeffortstoclimbtohigherlevels.Somehavemovedupastepbydoingmoreworkin theirbackofficeslocatedinIndia.ThesalaryofsoftwareprofessionalsinIndiaisrisingannually by1525%,othercosts,suchasinternationaltravel,arealsogoingupatanalarmingrate.To maintain and enhance their margins these companies need to move up to a value based modelofbusinessinwhichcustomerspayfortheirproductsandservicesbasedonperceivedor realizedvalue,andnotoncoststhatareincurred.Movingupthevaluecurveiseasiersaidthan done.Theprocessisbothroughtoughandriskyandneedsenormousamountsofmanagerial vision,courageandgrit.Thetreecorechallengesare

FirsttheyhavetoovercometheliabilitiesoftheirIndianness Secondtheyhavetodeveloporcapturearangeofnewcompetenciesthatarevitalfor internationalsuccess Third,theyhavetoprotecttheirpastwhilebuildingtheirfuture

OvercomingtheliabilitiesoftheirbeingIndian:Theliabilityhasmanydifferentdimensions . First most international customers expect the products of unknown companies from emergingcountriesto beinferioranditisextremelydifficult tochangethisperception.A secondliabilityistheprisonoflocalstandards.ForexampleincaseofBoilersIndianBoiler Regulations are much different from British Standards (BS) and US Standards (ASME). Finally, perhaps the most constraining liability of origin lies in minds of senior corporate managers.Deepintheirhearts,mostofthemdonotbelievethattheycansucceedabroad, particularly in developed markets. This lack of belief acts as self fulfilling prophesy: half hearted measures are quickly seen by both insiders and outsiders to be what they are , leadingtonegativespiralofineffectivesmallsteps.Toovercomeitfollowingstrategymay beadopted: Pullingfromabroad:Ranbaxydividedtheworldinfourregions,ofwhichIndiawasoneand postedequallystrongmanagerstoheadeachregion.Asaresult,internationaloperations eased to be peripheral appendage to a dominant domestic business. Ranbaxy hired a leading pharmaceutical multinational to head the region. His background and seniority in theindustrywasanenormoussourceofcredibilityandconfidence. Pushingfromhome:i.e.pushfromcorporatecenterlikeRanbaxy Developing new competencies : for moving up the value curve , the new buzz word in Infosys is value based selling. The most crucial new competencies required are, first , to buildinternationalbrandstrengthand,secondly,tobuildlocationwisedomainknowledge withinthehomecountries ofthecustomers,togethertheabilitytodevelopandmaintainclose
customer relationships. Objective should be to develop world class skills and capabilities. Companiesmaypursuethisgoalintwoways:theycandevelopnewcorecompetenciesinternally; or they can choose to gain control over new capabilities through alliances, partnership, or acquisitions.Mostmayrequireacombinationofbothapproaches.

Protectingthepast,buildingthefuture Ifyoudonotseekouttheglobalcompetitiveenvironment,itwillsoonenoughseekyou, e.g. Bajaj Auto is now competing agains every major twowheeler manufacturer in the worldinitsownhomemarket.Managementmustnotonlyfocusonwhereitisgoingto,it mustrecognizewhereitiscomingfrom.Itmustmaintainastrictdisciplineofbuildingthe futureonsolidfoundationsofprotectingthepast.

New tasks, new units: through Strategic business units(SBU), may be regional basis or on specificindustrysegments,soastobuildandexploitdomainknowledge,i.e.,knowledge abouttheclientsbusinesses.LinkagesacrossSBUsandclientneedsindifferentmarketsare maintainedboththroughfluidmovementofpeopleacrossthedifferentorganizationalunits andalsothroughinstitutionalizedmechanismsuchasinternetbasedbodyofknowledge database that allows everyone in the organization to access information acquired by the companyondifferentcustomers,technologies,methodologiesandprojects New roles, new skills: To represent the diverse needs of foreign markets and to develop strategiesappropriatefor businesses further up the valuecurve, newmanagers are often neededandtheymustbestrongenoughtorepresentthedifferentpointofviewthatwill emergeastheylearntoservenewproductsegmentsinnewgeographicmarkets.Thesekey individuals must be accommodative team players . They must have credibility to capture resourcesfrom thecore andinvestthem profitablyinthe periphery.Andtheymusthave the skill to take the knowledge and experience accumulated in the new business and transferthelearningtotheold Part3:Revitalizingpeople,organizationandrelationships Chapter9:Changingthesmelloftheplace Revitalizing people: No company can achieve radical improvement in business without revitalizing people. Every company has an internal behavioral context that shapes how peoplewithinthecompanythink,feelandact.Tochangebehavior,thatcontexthastobe changed. The responsibility for creating the behavioral context lies at the level of senior managers, who should change their views about management and their actions in the workplaceforonlythenwillthepeoplelowerdownchangetheirownbehavior.Formany years author Prof. Sumantra taught at ISEAD,a business School at France, and lived at Fountainbleau.EveryyearheusedtovisitCalcuttainthesummerinJulyduringchildrens vacation. In July he felt tired most of the time, exhausted by heat and humidity, thus he spent most of the times indoors, and a lot on bed. In Fountainbleau he felted and acted differently.Itiswasawonderfulplacetoliveinduetomagnificentforestthatsurrounded it.Hereliestheessencetheissueofrevitalizingthepeople The smell of the place in most traditional Indian Companies: When we walk a office, a factory,wegetasmellin1520minutes,inqualityofthehum,,inthelookinpeopleseyes, howtheywalk.Typicallytheirinternalcontextssufferfromfourdebilitatingcharacteristics, i.e.constraint,compliance,controlandcontract.Toplevelmanagersofcompaniestakeall decisionsandworkveryhardandcreatewonderfulstrategies.Forpeopleatshopfloor,and lowerlevelsitisconstraintsontheirchoicestheycanmake,itisconstraintonhowthey

canuse theirinitiative,creativity,and thinking.Secondcharacteristic iscompliance.Top level managers create all kinds of systemsHRM,Planning, budgetingsystems. Collectively feelingsatemployeelevel,thesesystemshanglikeablackcloudoverthemthatmustbe complied . Third characteristic is control. As far as the humble employee at eight level below the top, boss exists to control them, to ensure they do not do the wrong things. Finally job contract . The budget is personal contract, transfer prices are contracts. Relationshipsbetweencolleaguesanddepartmentsanddivisionsareallcontracts.Andyet whatisthebehaviorthatcompanieswantfromtheirpeople?Theywantinitiative,tolearn continuouslyandbringthebenefitsofthatlearningtothecompany,tosupportitssuccess. Theywantpeopletocollaboratetoshare,tohelpeachother,feelasenseofcommitment tothecompany.Howcanmanagerselicittheseresponsesiftheycreateacontextdefined byconstraint,compliances,controlandcontractaroundtheirpeople. Thesmelloftheplacefororganizationrenewal: Thecompaniesveryhighperformancelevel,inIndiaandabroad,onstrengthofbehaviorof theirpeoplehavesmelllikefontainbleauforestinspring.Exampleare3m,ABB,Infosysand HDFC. In all these companies, internal behavioral context was characterized by four very differentattributes:constrainttransformedtostretch,compliancetodiscipline,controlto support and contract to trust. Stretch is antithesis of satisfactory under performance, in this process each individual is continuously pushing himself/herself, everybody is pushing everyonearoundthem,pushingthemanagement,pushingthecompanytodomore,todo bettere.g.companiesofMrLNMittal,whicharelowestcostproducer. Second change in context is from compliance to discipline. People comply with something that is external, outside of themselves. Discipline , in contrast is internal, ingrained in the day to day behavior of individual of individuals and in all management processes. Discipline is managementbycommtitment.Itimpliesthateveryonedoeswhatispromised. Third , the behaviroral context replaces control with the norm of support. In it people perceptionaboutbossesisthattheyexisttohelpthemwinbypersonalcoaching,guidance, mentoring,helpthemingainaccessresourcesofrestoforganization.Thatcreatescontext ofsupport. Finally there is shift from contract to trust.It says You know we are part of the same organizationandItrustyou,tillyouuntrustworthy,andnottheotherwayround. Fromcontexttobehavior TocreateThesmelloftheplacefororganizationrenewalisveryhardtodo,evenforbest managements. Senior mangers find very difficult to delegate responsibility and

accountability,tilltheyhaveconfidencethattheywilltakecompanyforward.ManyIndian companies,particularlyfamilymanagedbusiness,sufferfrompreciselythisproblem. An invigorating forest in Mumbai , example HDFC : An extra ordinary company , run for ordinaryIndiansisHDFC.Thecultureandhiringpracticeofthecompanydiscouragedstars andhiredpeoplefromnexttierinstitutionswhotendedtohavesubduedpersonalitiesand were able to work jointly with others. It has been voted as most competitive company in India, havingAAAratedfinancialservices.Initiallyallloanapplicationstookfourweeksto approvealoan.Itreducedto25daysandfurtherstartedsanctionacrossthetablesame day.PurposeofthecompanystatesToHDFC,businessisnotmerelyaboutearningprofit, butawaythroughwhichweprovideessentialservicetothesociety Extraordinaryresultsthroughordinarypeople: Theintensifyingspiralofcompetitionbeingfacedbythecompaniesinascendingorderhas followingfactors 1.Noonemakesanymoney,2.competitorscopy,everyonehassametechnology,costbase, servicelevels3.Innovatetogettechnology4.Allcompetitorshavesametechnology5.Feel good for a while 6. Reduce cycle time, 7.stem market share loss 8. Reengineer 9. Restructure,reducecost Tobreakoutnegativespiralandtoovercomeemployeecynicism(motivatedpurelybyself interest), frustration and exhaustion, managers need to recognize that while corporate renewal may be initiated by strategic, structural, technological or operational changes, it enduresonlyifitissupportedbyfundamentalchangesinpeoplesbehavior. Toplevelmanagersmustrecognizethattheirkeytaskinbuildingcompetitiveadvantagelies in stimulating the companys most valuable resource its people to be more motivated , creative and entrepreneurial thanemployees of its competitor. Only when they librate and challenge their people to develop and leverage their knowledge, skills, imagination and couragewilltheyhavecreatedadynamic,selfrenewingcompany Chapter10:TheCompanyasaUniversity People are innately curious and, as social animals, are naturally motivated to interact and learnfromoneanother.Thinkorganizationsnotjustasaportfolioofbusinesses,theirpeople not as mere factors of production, they have to view the company as an educational institutionandrecognizethatcompetitiveadvantageflowsfrompeoplesabilitytoconstantly enhancetheirknowledgeandskills.Intelhasitsownuniversitywithplethoraofcoursesthat employeescanselfnominatethemselvestoandofferssabbaticalschemealso.InmostIndian companies,continuingeducationisstilltreatedasaluxuryandadiversion.Guilta,Hindustan LeversspacioustrainingcenterinMumbai,hostscoursesattendedbyparticipantsfromforty countriesthataretaughtbythemostrenownedexpertsnotonlyinIndiabutalsofrombest international B Schools . Reliance pays a great deal of attention to formal training at IIT

Mumbai and IIMB, special modules designed for it.There are structured programs for mechanicsandoperators.GroupofEngineersarefrequentlysentabroadfortraininginplants selectedbycompanieswhoprovidetechnologiestoit.Thisensuresthattechnologytransfer andoperationstakeplacewithoutanylossoftime. In such organizations education is structured as a continuing process, not as an event or a seriesofunrelatedevents.Theprocessisalsobuiltaroundpeople,notprograms.Whileaimed at individual development , the process is also focused on organization development by explicitlylinkingthecontentwithcompanysbusinessandstrategy Redesigning Work: To get every worker to become a passionate collector of skills and qualifications,asawaytoreducehisboredomandtoenhancehisemploymentsecuritylistthe skills that are associated with eachof the different jobs in a factory . At the same time, it structures these skills in a set of hierarchies the pathswith each preceding skill facilitating workersabilitytoacquirethenextskillinthepath.Likemanyinfotechcompanies,HCLrotates employees between on site (software developed at overseas customers site) and off site (at thesoftwarecontractorssiteathome)job.AtypicalHCLengineertravelsupthevaluecurve. Democratizinginformation:DrYoshioMaruta,KaosChairman,describedlearningasframeof mind , a daily matter in which truth had to be sought through discussions, by testing and investigating concrete business ideas until something was learned, often without the leaner realizingit.Herepeatedlyremindedhismanagersthatintodaysworld,informationistheonly source of competitive advantage. In order to make it effective to discuss subjects freely, it is necessarytoshareallinformation.InKao,everymanagerandmostworkmenhadfaxmachines in their homes to receive results and news, a biweekly newspaper kept them informed of competitors moves, new product launches, overseas developments and outcomesof key meetings SeniormanagersasFaculty:AsperDrMaruta,theorganizationhastobedesignedtorunasa flowing system which would stimulate interaction and the spread of ideas in every direction andeverylevel.AtKao,nooneownsanidea,Ideasaretobesharedinordertoenhancetheir valueandachieveenlightenmentinordertomakerightdecision.Thiswasvitalrequirementfor people to play their role as teachers. At GE Welch replaced formal complex and multi step planning process with a more personal , informal and intense process of direct manager to manager discussions that focus on key strategic issues faced by each business. The multi volume planning documents have been replaced by slim playbooks that provide concrete answers to questions about each businesss global market dynamics, key competitive activities, major risks, and proposed GE responses. Beyond reducing corporate bureaucracy, speeding up decision processes and enhancing the quality of the final decisions, the new process has also become a key instrument for Welch and his colleagues to directly and personallycoachmanagerswhoarethreeorfourlevelbelowthem.

AtHaziraandJamnagarofRIL,thecompanyhadtoidentify,recruit,trainanddevelopalarge numberofpeopleandthewholeprocesshadtostartfromscratch.Thestrategywastorecruit a core group of experience senior managers from both India and abroad and simultaneously initiate a program of recruiting a large number of fresh graduates from Engineering, Science, management, finance and accounting colleges. The core group took on the responsibility of bothsettingupthebusinessaswellastraininganddevelopingtheyoungerpeople. Helping People become the best they can be : case study of Infosys As per Sri NR Narayan Murthy,founderChairmanofInfosys,corefeatureofthecompany,hasbeenitsunwavering commitment to helping people become the best they can be. It is perhaps , the most outstandingexampleinIndiaofacompanythatviewsitselfquiteexplicitlyasaUniversity.The campus of Infosys at Electronics city which is its Head Office, at Bangalore . Walking through reception,leadavistortoabridgeandwalkingoverthebridgewouldleadtocanteen,thelittle kiosk which sells cold drinks and snacks and the basketball court. At any time of the day , individuals or groups can be seen here either deeply involved in heated debate about the project on which the team is working or simply lying on the grass. As in colleges , except for scheduledmeetings,therearenofixedtimesforanything.Infoscianscanworkthehoursthat suit them, just as they can play the hours that suit them. All professional recruits have to undertakea105daytrainingcourse,designedtocreatestandardequivalenttoGraduateinthe USwithaBacholersdegreeinInformationSystems.BeyondthisinitialtrainingInfoscians,take coursescontinuously,toupdatetheirknowledge,tohoneupnewtechnologiesandemerging ideas.,andtobroadentheirmanagementskills.Attheendofeveryprojectthereisaclosure analysis report which examines both what well done and what was not in terms of meeting customer requirement, quality, deliverables and processes. Infosys generously spends almost 5% of revenues on education. Knowledge management is a funny business. No body reads. Theyhaveahugeportalwherepeopleuploadtheirexperiences,butthisisstatic.Whatdoes workaretheirBestpracticessessions.Asfortrainingdelivery65%facultyisinhousewhile10% is outsourced and for rest line managers take classes.The faculty also spend some time on projects,otherwisetheywouldbeoutdated.AsperHemaRavichandar,SrVP,HRDEducationis a true business partner. By giving high value training to individuals, by making them managementconsultantsandnotjustsoftwareengineers,weareeinventingfuture Chapter11:BuildinganEntrepreneurialOrganization Over the last decade many companies around the world have succeeded in creative spark of theirpeople,andinignitingthecreativesparkoftheirpeople,andinprotectingandfanningthe resulting entrepreneurial flame. In Japan , Toyota has cut two layers from its organization to createmoreentrepreneurialspaceforitsfrontlinemanagers.IBM,spunoffindependentunits toprotectspecificprojectsfromroutinebureaucracyandcorporateinterventions.

Evenaftermajororganizationalchanges,toplevelmanagershavecontinuedtoseetheirjobas onesettingthecorporatestrategyandimplementingitthroughtheirroleasresourceallocator. Middle level managers too have remained focused on proper fulfillment of the demand of checkandbalances,playingtheirfamiliarroleofadministrativecontrollers.Andswampedby direction and control from above, front line managers have continued to play role of operational implementers, responding to the demands of internal organizational processes ratherthanfocusingonexternalopportunities. BuildingtheEntrepreneurialProcesses:Threekeyorganizationalcharacteristicsare They create small and disaggregated performance units and make them primary buildingblocksoftheirorganization. They drive performance in these units through simple , flexible but highly disciplined planning,control,andresourceallocationsystem They articulate a clear strategic mission and operationalize it for each unit through unambiguousorganizationalnormsandperformancestandards.

Disaggregatedperformanceunits:Intheprocessofbuildingtheclassicmoderncorporation,a centralobjectivehasbeentoimprovecoordinationacrossmulitiplefunctional,businessand geographicboundaries.Insodoing,smalloperatingunitshavebeenrolledupintolarger integratedgroupingstofacilitatethedesiredcrossunitintegration.Inthisprocess,however, individualinitiativeandflexibilitythatflourishedinthesmallerunitsusuallysuffered.Neof thebasicrequirementsforacompanytryingtobecomemoreentrepreneurialisforits managementtofundamentallychangethewayitlooksattheorganizations.Ratherthan viewingitprimarilyintermsofgroupsordivision,withoperationsbeingrunbydepartments oroperatingunits,itneedstoconsciously,focusonsmalldisaggregatedunitsastheprimary elementsoftheorganizations.KekiDadisethhasspearheadedwithinHindustanLever conceptToretaintheaggressivenessandagility(abletomovequicklyandeasily)ofa smallercompanyaswegetlarger,createsmallprofitcenters.Thiswillalsooffergrowth opportunitiesforourkeymanagers. Performance driven system : Process is a set of systems that reinforce the focus and accountability of the performance units. Rather than driven by informational needs of top management , the systems in these organizations are designed and managed to be more sensitivetooperationalrealitiesfacingfrontlinemanagersandtomaintaintheirmotivation. Another main pillar of corporate systems is annual budgeting process, and many companies findthatthiscoresystemistooinflexibleandimpersonaltosupportthekindofentrepreneurial valuestheywanttocultivate.Companiesthathopetocreateanentrepreneurialorganization process must developbudgeting systems that are seen as legitimate , and manage them in a way that is motivating. For most, this approach implies a budget system in which front line managers not only take more responsibility but are also held accountable. Corporate

managementsprimaryroleistosetbroadobjectivesandclearstandardstoelicithonestand ambitious operating objectives from these units, and to measure and evaluate performance againstthoseobjectives.Indoingso,Corporatemanagementfindthattheycangreatlyreduce theneedforstiflingcontrolandoverbearinginterferencethatkillsfrontlineinitiative. Clear Mission and standards: without a clearly defined and broadly communicated strategic mission,frontlinemanagershavenobasisforselectingamongthediverseopportunitiesthey might confront, and bottom up entrepreneurship soon degenerates into frustrating guessing game.Themosteffectiveobjectivestobepreciseenoughtoclearlyruleoutactivitiesthatdo not support the companys strategic mission, and yet broad enough to prevent undue constraintsonthecreativityandopportunismoffrontlinemanagers Entrepreneurship is often mistakenly thought of as the antithesis of operational discipline.In contrastitisfoundtheentrepreneurialcompaniestohaveunusuallyhighlevelofdisciplinein theirmanagementprocesses,builtthroughacombinationofstretchedperformancestandards andrigorousmanagementreporting.Theybuildasymbiotic(an interaction between two different organisms living in close physical association, especially to the advantage of both) relationship betweencorporateambitionandcurrentresults,witheachfuellingandstretchingeachother. AsdescribedbyAnilLahiri,Director,HR,HindustanLeverOneofthegreatestthingsaboutthe companyisthatafterthedebate,onceadecisionistaken,everyonefallsinlineandworksto achieve the objective. This happens across the organization and all the way down to the worker.Oncetheyagreeonatarget,thatisacontract.,hesaid,referringhisexpectationfrom virtualCEOs Aprofoundshiftinsocialvalues: Theclosingyearsofthetwentiethcenturyhavetriggeredafundamentalshiftinsocialvalues, frombureaucratictoentrepreneurialideal.Theidealofbureaucracyhaslostitsclaimasa sourceofeconomicprogress,justasentrepreneurisemergingastheherointhedramaof creativedestruction.Thebureaucracyenteredthelastcenturyasaconqueringhero,itexited thecenturyasaspentforce.Itsfundamentalstrengthofdepersonalizationprovedtoalsobe itsfatalflaw.Whileitcouldmaintaintheexistingorderwithefficiency,itcouldnotrespond toenvironmentalshocksthatcreatedtheneedforaneworder.Itcouldrationalize,butnot revitalize.Itcouldcontrolpeoplebutnotinspirethem.AnearliergenerationofIndians enjoyedhonourthestatusandlegitimacythatcamefromworkingwithestablished companieslikeTata,Birla,IndianOil,IASasbadgesofhonor.Employeeswhocameofagein 1990s,however,felttheconstraintsofbeingcogs(awheelorbarwithaseriesofprojections onitsedge,whichtransfersmotionbyengagingwithprojectionsonanotherwheelorbar)in giantmachines.Theyresentedthestifling(preventorconstrain,anactivityoridea)oftheir initiativebytheneedofendlessapprovals.Theyweredisheartenedtoseetheresultsoftheir actionsobscured(notclearlyexpressedoreasilyunderstood)bycompanyslargesize,and

politicsreplaceperformanceasbasisforrecognitionandreward.Whilethedryrothadsetin inadecadeorago,thefinaltippingpointindethroningofbureaucracycameinthelate1990s ,withtheriseofnewsetofinstitutions,mostlyinITsector.CompanieslikeInfosys,satyam Computers,NIITandothersblewthemyththatIndianculturecherishedhierarchyand paternalism.Thesenewupstartsnotonlysurprisedandshockedtheoldfeudal(the dominant social system in medieval Europe)businessMahrajasbyovertakingtheircompaniesmarket valuesandtheirpersonalwealth,theyalsodeprivedtheestablishedbureaucratic organizationsoftheirlegitimacyandpublicrespect.Managerswhocannotgatherupthe couragetorebuildtheirorganizationsintoentrepreneurialmodelmayleavetheircompanies strandedonthewrongsideofchasmseparatingoldcorporateIndiaandnew,emerging economy Chapter12:NewManagementrolesandtasks Toplevelmanagerstoseetheirjobasonesettingthecorporatestrategyandimplementingit throughtheirroleasresourceallocator.Middlelevelmanagerstoohaveremainedfocused onproperfulfillmentofthedemandofcheckandbalances,playingtheirfamiliarroleof administrativecontrollers Incontrast,inentrepreneurialorganizations,therolesofthesemanagersareradicallydifferent Frontlinemanagers,headingsmall,disaggregatedandinterdependentunitsfocusedon specificopportunities,arecompanysentrepreneurs.Theyarebuildersofthe companysbusinessesandtheydrivethecompanysperformancebycontinuously strengtheningthosebusinesses Likecoacheswholeveragestrengthofindividualplayerstobuildawinningteam,senior levelmanagerslinktheseseparatebusinessesintoacoherent,winningcompany.Their valueaddedliesincreatingthestrategicandorganizationalframeworkwithinwhichthe diversecapabilitiesoffrontlineunitscanbeintegratedacrossbusinesses,functions, andgeographicregions Topmanagementinfusesthecompanywithanenergizingpurposetodevelopitasan enduringinstitutionthatcanoutliveitsexistingoperations,opportunitiesand executives.Likesocialleaders,theycreatethechallengeandcommitmentnecessaryto drivechangesothatcompanycanrenewitself Howdoesonebuildsuchanorganization? Casestudy1:TransformationofmanagementatABB.PercyBarnevikhasemergedas oneofthemorevisiblerevolutionary,revenuegrowfrom$18bto$35bfrom1988to 1997,whileimprovingreturnoncapitalemployedfrom13to17%.HehasbuiltABBas afederationofsmall1200companies,eachemployingonly200people,onaverage,and generatingbetween$25m200mannualrevenue,asseparatelegalentity.The companiesinturn,havecreated4500profitcenters,eachprofitcenteremployingan average50people.Thereisonlyonelevelofmanagementbetweenthecorporate executivecommitteechairedbyBarnevikandheadsof1200companies.Thecorporate hqof$35bcompanyhaslessthan100people.Attheintermediatelevel,businessarea mangersaresupportedbyastaffofthreetofive.Bothstrategicplanningannual budgetingsystemsaredesignedtoinvolve,motivateandsupportfrontlinemanagers. Thestrategicplanofeachbusinessareaarediscussedbytheconcernedmanagerwith

thegroupexecutivesandareapprovedbyBarnevikwithoutanyinvolvementofthe corporatestaffgroups.Budgetsaresetbottomup,basedonagreedstrategies,andare seenaspersonalagreementsbetweentheheadofoperatingcompaniesandthetop management,whichtheformermustfulfillandthelatercannotchangearbitrarily. Barnevikhassetfinancialperformancestandardsas10%operatingprofitand25% returnoncapitalemployed. Frontlinemanagersasentrepreneurs: CasestudyofDonJans,theheadofABBsrelaycompany,whichwaspartof Westinghousesbusiness.AstheheadoftheUSrelaybusiness,Janshadbecome accustomedtothefivelayersofmanagementbetweenhimselfandWestinghouses CEO.InWestinghousehehadtodealwithbureaucracyimposedby3000strong headquarters;inABBhehadtobecomemoreselfsufficientinanorganizationinan organizationwith100peopleatcorporate;inWestinghouse,decisionshadbeentop downandshapedbypoliticalnegotiations;inABBhisunitwasstructuredasaseparate companyandwasexpectedtotakeresponsibilityfordecisionsbasedondataand results.ABBshighlysophisticatedandfullyautomatedinformationandreportingsystem allowedmanagementtoanalyzedatainaggregatinganddisaggregatingitacrossany businessorgeographicdimension.Jansregularlyreceivedadetailedproductby productanalysisofhiscompanysperformance,notonlycomparedtoitspastresults butalsorangedagainsttheperformanceofothercompaniesinhisbusinessareaand geographicregion Itisbelievedthatinsideeverycorporatehierarchy,anumberofentrepreneurialhostages likeJansarestrivingtobreakfree.Likehim,theyhaveareservoiroflatentideas,energyand commitmentwaitingtobetapped.Therisk,howeveristhatsuchafocusonfrontline entrepreneurshipwillnotonlycreatetheundisciplinedexpansionexperiencebythe conglomeratesof1960s,butthatitwouldalsolocalizeandfragmentthecompanys resourcesandcapabilities Senior Managers as coaches: Historically , senior managers , situated between front line operating units and top management , enjoyed a central position in a companys decision processes, because of their intermediary roles, disaggregating corporate objectives in to business unit results for corporate review. They had controller role, giving them enormous status with in the company and they had influence in vital information flow across the hierarchy. Recent complimentary trends of de-layering the middle levels of organization ,empowerment of front line positions, and the increasing use of information systems for communication have threatened to render obsolete all these traditional roles Case study on new roles for senior managers: Mr Ulf Gundemark, as head of world wide relay business and Mr Jans boss played crucial role in managing the tensions inherent in the companys ambition to be global and local, big and small ,radically decentralized with central reporting and control. He focused on three core tasks He was business strategist, building the overall strategic and organizational framework within which the mandates of front line managers were defined

He was the organizational integrator linking and leveraging the resources and competencies developed in the front line units He was the key support and guidance for the front line entrepreneurs, helping them not only with personal counseling , but also with his broader knowledge of access to required corporate resources The above tasks were in addition to traditional divisional managers responsibility for operating performance ABB formally describes a business area head as the business strategist and global optimizer. Companies that dismantle their vertical integration mechanism , without simultaneously creating horizontal coordination processes, quickly loose the benefits of both large company power and front line entrepreneurship . At the same time , such intense horizontal flows can also paralyse the organization. It is the senior managers who make inverting the pyramid operational both by developing the front line entrepreneurs and providing them support so that they are not overwhelmed by the ambiguity, complexity and potential conflicts in such horizontal, networked organizations Top managers as Leaders : To capture the commitment and creativity of their people , top level managers in the entrepreneurial companies , top managers has begun replacing the hard edged assumptions of the traditional model with a set of corporate roles that were less directive and constraining. From being the formulators of corporate strategy , they have become the shapers of an organizational context in which strategic initiative could emerge. Instead of creating formal structures that gave them control over firms financial resource , they devoted their most of the efforts to developing the organizations resources. And , rather than using the management systems to monitor and control operations , they got back in touch people deep in the organization and began to refocus on the individual as the primary unit of analysis. The new framework also defined four strong values to guide management action: the importance of quality, a commitment to technological excellence, a dedication to productivity and performance , and a strong belief in people. In selecting key managers for the organization , look not only a track record of broad experience and proven performance , look personal characteristics (flexibility ,integrity, statesmanship) that suggested a willingness to learn and operate in new ways thus creating a self driven,self renewing organization. To reignite the spark plugs of managerial entrepreneurship that were the original source of their success, large hierarchical corporation need a fundamental reshaping of their organizational main stream. And to lead such a radical change , top managements have to first reorient how they think about organizations Chapter 13: Building shared destiny relationship There are two kinds of relationships viz. Power based relationships and Shared destiny relationships, correspond to a very different management philosophy Power based relationships Shared destiny relationships

Win-loose transactional Short term Your problem My benefit Maximize autonomy

Win-win Relationship based Long term Our problem Our benefit Maximize interdependence

Fundamental choice on above relationship is with regard to supplier relationships, inside the organization, with employees and trade unions, and outside firms, with vendors, dealers, customers , regulators, joint venture partners, even competitors. The reason for developing shared destiny relationships is exactly the opposite-to continuously and radically improve business performance. It is all about maximizing share holder value. As people like John Niell of Uniparts CEO and HT Parekh of HDFC understood, long term , open and trust based relationships with employees, customers, suppliers and others do not come at cost of shareholder value , they are the means for achieving that end. Case study in the book of Hero Honda Motors in India proves validity of above theory Part IV: Transforming the corporate philosophy Chapter 14: A new manifesto for leadership To respond to the multidimensional changes in their environment, they will need a much more broadly based and more closely integrated systemic change the way they are organized and run. In defending importance the importance of theory for good practice, Lord Keynes once said that every living practitioner is a prisoners of ideas of dead theorist Obsessed as they are with real world and focused as they are on pragmatism (Philosophy an approach that evaluates theories or beliefs in terms of the success of their practical application.) and actions rather than on theory or concepts, managers are actually no exception to Keynes doctrine. Beyond Strategy, Structure, Systems to Purpose, Process and People Strategy, Structure, Systems: Simulated by the enormous success of its pioneers, strategy-structure systems doctrine spread around the world . It came to India in the 1970s and 1980s, under the grab of professional management. Structure follows strategy, it claimed and systems support structure. Within two decades, these aphorisms (a vigorous and concise expression which contains a general truth) deeply penetrated Indian Management thinking. Soon, a generation of senior managers came to the fore in corporate India who saw these three powerful tools for establishing the direction and leveraging the performance of their corporation. As a result, they defined their own roles as the companys designers of strategy, architects of structure and builders of systems. In a highly restrictive and regulated economy characterized by wide spread shortages of most products , the key management task was to allocate the companys limited financial resources among competing opportunities in different divisions and then monitor the performance of

divisional managers against their plans through a tight control system. By providing discipline, focus and control, the strategy-structure-systems management doctrine suited this context very well. Change: Over the 1990s , Indian economy has undergone some profound changes.
Overcapacity and intense competition are the norm in most businesses. The lines separating businesses have blurred as technologies and markets have converged , creating new growth opportunities at the intersection of traditional industries. And, most notably , ideas and knowledge have increasingly replaced capital as the scare resource and key resource of competitive advantage. In this new world hiring an excellent manager or scientist can often a bigger triumph than bagging a big bank loan, thus strategy-structure systems model has become obsolete

In the emerging knowledge and service intensive economy , the key challenge is not to establish control over people so as to run a company as if it were a machine; it is to be able to attract, develop and retain the best talent and to link , diffuse and leverage their knowledge , skills and initiative to create innovations and new opportunities. Instead of trying to be designers of strategy , people like HT Parekh and NR Narayan Murthy took the role of establishing a sense of purpose within the company , defined in terms of how the company will create value for all its constituents, and strategy emerged within their organizations, from the energy and alignment created by that sense of purpose. As opposed to constantly playing with boxes and lines that represented their companys formal structure in an organogram , they focused on building core organizational processes that would support the entrepreneurship of front line managers, integrate the resources and knowledge across the front line units to develop new capabilities, and create the stretch and sense of challenge that would drive the whole company into continuously striving for renewal through new value creation. And instead of being builders of systems , they took on the role of being developers of people , creating a context in which each individual in the company could become the best he or she could be. In essence, they replaced three Ss of strategy, structure and system by the three Ps of Purpose, Process and People. It is important to emphasize that new philosophy does not imply rejection of the old doctrine. Although this change in philosophy pervades the entire organization, its starting point rests with top management. It is their managers who have to lead their companies transition. Beyond strategy to Purpose: Most top-level managers find this notion of softening the strategic focus at the top very hard to accept. They fear that unless they provide a clear strategic direction, they may lose the respect and admiration of employees. Today, the corporate leaders greatest challenge is to create a sense of meaning with which the companys employees can identify and in which they share a feeling of pride. What does it take to create a sense of purpose ? One key element is to establish a shared ambition or vision. H.T. Parekh of HDFC established a profound sense of purpose by focusing every ones attention on an important social need-to solve the crippling housing problem in India. Helping middle class Indians own a home was innately a wholesome goal, one to which employees could relate with a sense of

those values then determined who would be in management team. People are not loyal to a company or to an individual but to a set of values they believe in and find satisfying. Finally for the purpose to become an active management process at all levels of the company, it is necessary to bring the vision and values down to the level of each individual. They have to be translated so that, to quote old saying, each stone cutter can see his job as part of building of a temple. Beyond structure to processes : Perhaps even more than strategy, structure is a highly seductive lever for top level managers, and most of them see their control over the companys structural configuration as a powerful tool to shape the broad direction of the organization and to influence the actions of managers lower down the hierarchy. The shift from structure to processes as the primary organizing device was initially built around agendas such as TQM, time to market, and supply chain management, which all focused on horizontal processes cutting across the organization, rather than the vertical processes of control and command that lay at the heart of structural thinking. The gradual shift finally became a tidal wave as the process re-engineering movement swept through the corporate world in the mid -90s.In India the trend has largely been opposite. While Jack Welch was tearing out old structure in GE, Indian business schools were teaching outdated GE cases to MBA students and executive program participants, however companies like Hindustan lever , HCL, Infosys , and Ispat have been blazing a different trail, focused on developing processes rather than elaborating structures, to concentrate on how organization would create value. The focus on processes is manifest in these companies at many different levels. All have them have significantly improved their operational processes- how to pay bills or how to assemble parts in the factory, by re-designing workflow, often with support from new IT mediated methods. They have built their organization on three core processes: an entrepreneurial process to drive the externally oriented opportunity-seeking seeking behavior of their companies; an integration process to link and leverage their diverse resources and diverse resources and competencies lodged in different business, regional or functional areas, and a renewal process to constantly challenge the existing ways, to prevent past success formulae from ossifying (cease developing; become inflexible) into a recipe (something likely to lead to a particular outcome: a recipe for disaster) for future disaster. A focus on entrepreneurial , integration and renewal processes leads managers to view an organization not just a portfolio of activities but a social system built on roles people play, and the relationships that connect them. Front line managers role is transformed from that operational implementers to entrepreneurial spark plugs, they spread entrepreneurial process , supported by coaching role of senior managers and the framework building role of top level managers. Beyond this support role in entrepreneurial process , the senior managers in the middle act as the lynchpins ( an indispensable person or thing) in the integration process, linking the front line initiative into coherent strategic thrusts and leveraging the companys competencies by transferring best pest practices and sharing and coordinating the use of resources. Finally, the corporate leaders drive the renewal process , establishing stretch goals and performance standards, shaping vision and values of the company, and constantly challenging the organization to prevent ossification to maintain performance momentum. Beyond Systems to People: While top-level managers see systems-planning system, budgeting systems, control systems and so on- as the lifelines that provide their information link to the operations, to people in operating units the same systems feel like ropes that

pride and created customer service orientation. To create purpose , it is equally important to also shape and embed in the company a set of shared values, a description of what kind of it wants to be. Objectives and strategies do not get you there, values and people do, said GEs jack Welch. We defined a set ofvaluesand

bind them, chains that tug them to heel when problem arise, and as puppet strings that control their actions from above. Besides this ,consequences of de-motivating and disempowering people, the elaborate infrastructures of systems have led to another set of debilitating (make very weak and infirm) problems in large companies. Companies like Infosys, Ranbaxy, Reliance, HDFC, Hero Honda etc developed philosophy like GE. Instead of imposing elaborate and strict control systems to ensure compliance , Dhiru Ambani and Narayan Murthy- both in their own different ways used interpersonal relationships and direct interactions to shape to shape peoples behavior . And rather than relying on abstract and aggregated information systems, Keki Dadiseth and Azim premji developed alignment through rich and intense personal communication with those who have vital intelligence and expertise. In each company , the senior management worked hard to delegate authority but also to provide support and they matched their demands people with investments on them, to build their capabilities. The one message that came out was their firm faith in people as most important source of competitive advantage. In the new management model emerging in India , chief executives recognize that the diversity of human skills that the unpredictability of the human spirit make initiative, creativity, and entrepreneurship possible. The most basic task of corporate leaders is to recapture these valuable human attributes and to do so, they need to abandon nad constraining strategy-structure- systems doctrine and embrace the librating philosophy of purpose, processes and people Creating Value for the society: Companies create new value for society by continuously creating new products and services, by finding better ways to make and offer existing ones; markets on other hand , relentlessly force the same companies to surrender over time , most of value to other companies. Dynamic efficiency comes from innovations and improvements that create new options altogether moving the system to a higher level. Instead of merely appropriating value, companies serve as societys main engine of discovery; they progress by continuously creating new value out of societys resource endowments, thus stimulating both social and economic progress. Narayan Murthy had come to realization that distribution of wealth must be prceded by creation of wealth.This was the goal behind his founding the new company with six other Patni computer collegues- to create one hundred rupee millionaires in India, via the establishment of an ethical business firm based on highly competent and skilled workforce in the area of software development technology. By making Indians rich, he would make India rich. Regaining corporate Legitimacy; There is a clear lesson from history-institutions decline when they lose their social legitimacy. This is what happened to zamindars , and this is what happened to companies unless managers accord same priority to the collective task of rebuilding the credibility and legitimacy of their institutions as they do to the individual task of enhancing their companys economic performance. Individuals like HT Parekh, Narayan Murthy Azim Premji collectively , they are Indias role models demonstrating the spirit, passion and moral commitment of which entrepreneurs and managers are capable .Ideas matter. In practical discipline like management , they matter even more.The time has come to throw out the old paradigm of management, and to make a jump to the new one. Otherwise , the fatal gap between companies economic power and social legitimacy will continue to grow , stunning the growth potential of Indians, Indian companies and India.