‘dharma, the very path to sustainable profit and growth’

November 15, 2017

You have straddled the management world across continents and have gathered insights into its various facets. How strong is culture vis-a-vis an organization’s well-being?

Culture is the, relatively, most important of the three factors that are needed for the effectiveness of an organization, including its well-being. The other two factors are organizational structure and organizational processes. In the early decades of management education, training and consulting, the focus was almost exclusively on ‘structure’. It was a mechanistic concept, typified by an hierarchical chart. Unsatisfactory experiences such as low productivity, poor quality, absenteeism, and low engagement of workers on the one hand, and research by behavioural scientists, on the other hand, brought out the human, psychological, and social factors impacting the organization. In the late 1960s, IIM Calcutta had India’s strongest behavioral science group. I was fortunate to be there from 1967-72. It was an eye-opener. We became sensitized to issues of inadequate self-awareness, interpersonal skills, team play, conflict resolution, communication, and leadership, which did not allow the ‘structure’ to function, as intended in its design. Finally, after ‘structure’ and ‘processes’, we came upon ‘culture’ as a vital factor, when we confronted the issue of why some organizations continue to perform and survive for long. Technologies and products will, in due course, become obsolete. An organization with a strong culture will find new solutions.

1213How can a high-potential and inspirational leader shape a stable and healthy organization?

By the time a manager becomes a CEO, he has already delivered on part of his potential. But he is there because the Board believes that he has much further potential. To ‘shape a stable and healthy organization’, the first thing he needs to do is to deeply introspect on his earlier organizational experiences. What worked. What did not. The strengths and weaknesses in the three elements, SPC that helped and hindered the organization’s effectiveness. Second, he should observe wherever possible, other organizations, where he has relationships, to learn from their organizational successes and failures. Third, he should read about well-known Indian and global examples of long-term vitality, or extinction. Then, he can proceed to shape a good organization. As an inspirational leader, he should begin with ‘mission, vision, and values’. The ‘mission’ defines the core business of the organization. The ‘vision’ is about where it aspires to go. ‘Values’ are the building blocks of the culture of the organization. Deep cultural differences will hinder performance. The recent exit of the CEO of Infosys illustrates this.

You staunchly believe in the power and purpose of ‘dharma’ in all aspects of life. How best can it be incorporated into an often profit- and growth-driven business paradigm?

Dharma, ethics, is relevant for all organizations—for profit; non-profit; professional; political; governmental; and any other type imaginable. Dharma is non-negotiable. In our philosophy, the life goals are always stated in one, and

only one, order. That is, the goals are: ‘dharma’, ‘artha’, ‘kama’, and ‘moksha’—ethics, wealth, enjoyment, and transcendence. The first two, ethics and wealth, are most relevant for business. The first dharma of any business is to meet the rising expectations and needs of all its stakeholders. There are, basically, four stakeholders––customers, shareholders, employees, and society. Without dharma in product and service quality, a firm cannot retain customers, and increase its market share. Its dharma to shareholders is to make adequate profits, to be able to pay reasonable dividends and enhance the wealth of shareholders, by a rising share price. A firm will fail to attract and retain talent, if its HR practices are not ethical. The dharma to society is to pay taxes; help its local communities; protect the environment, employ persons with disability; and contribute to worthwhile causes. So, dharma is not an optional extra to be ‘incorporated’, but the very path to sustainable profit and growth.

A successful business may not uphold ethical values. How best can one strike a balance?

The way to strike a balance is not to try to ‘maximize’ any one goal, such as profit or growth, but to ‘optimize’ between the multiple objectives of profit, growth, reputation, and survival. Beyond a limit, a push for profits can erode customer satisfaction. Similarly, at some point, the pressure for very high growth can risk the survival of the business. Optimization happens when the business follows its values of delivering quality to customers, repayment of interest and debt to lenders, creation of wealth for investors, job satisfaction for employees, payment of all due direct and indirect taxes, and making social contributions.

Positive external forces are now making it difficult for firms to violate values. We see the rise of the ethical consumer, investor, employee, and citizen who advocate ethics, and question and expose unethical practices. The government, tax authorities, regulators, media and other institutions also now reward ethics, and punish the lack of it, more quickly.

Can mandating CSR, as in India, serve as a catalyst for creating a tangible social impact?

CSR was a tradition and value of indigenous businesses in the pre-Independence era. They wanted to build India’s industrial capability, despite hurdles from the colonial power. They had a close association with our freedom fighters, and supported their struggle. But, alas, post-Independence, roughly [during] 1950-80 an ideology-driven government became adversarial to business. Excessive regulations, small capacities, price controls, and high taxes made businesses struggle even for survival, let alone attend to CSR. Post liberalization, with higher growth and profits, many businesses were voluntarily raising their CSR budgets. There were also laggards. So, mandating CSR through law was felt necessary. It has created a big national CSR corpus. It is already making

a social impact, at local levels. It has the potential to do more. If GDP growth rises to 8% from 2018-19, with industrial growth at 14%, the CSR capability will grow exponentially.

How do you view the potential of social entrepreneurship?

Social entrepreneurship also has high potential. India’s needs are immense. With a large population and democracy, we cannot have government and party authority-based compliance. We have to work on the triangular model of civil society, market, and the State. There is a role and need for all kinds of entrepreneurship. In ‘social’ entrepreneurship, the focus is not on profit, but on chosen missions such as education, health, and livelihood. But the management challenges are similar to a commercial enterprise. The social enterprise should also be efficient, productive, and cost conscious. Doing good is no excuse to be sloppy, negligent, or slow. First, it should minimize losses. Second, it should move towards break even. Third, it should try to generate surpluses for reinvestment and growth. Finally, it should incubate, mentor, and grow more social enterprises.

The government cannot do all. How do you view the potential of private-public partnerships in addressing social problems?

A purely government-run program or a private business is less complex and easier to run. PPP has potential. But in the Indian context, it can have complications. These can arise from political, bureaucratic, or legal aspects, and also, from some unethical private partners. There is a broad push from people on political parties towards ‘good governance’, and from stakeholders on companies towards ‘good corporate governance’. Also, in the emerging cooperative and competitive federalism model, there are more and more states providing better regulatory environment for PPP. The vision of ‘New India 2022’ can be achieved better if there is a fostering of such PPPs to solve social problems at the state, city, district, and panchayat levels.

During your long stint of working with the government and PSUs, you have initiated many an organizational restructuring. Three dos and don’ts to keep in mind while executing such an exercise…

‘Restructuring’ an existing organization is, understandably, a more difficult exercise than ‘designing’ a new, greenfield organization. One has to keep in mind both the positive ‘heritages’ of past organizational experiences, as well as negative ‘legacies’.

The three main dos are as follows. First, keep in mind the future ‘strategy’ of the business. That strategy should have dealt with the key business portfolio choices—what businesses to ‘retain’; which present businesses or major operations or locations to ‘exit’; and which new ones to ‘enter’. The organization’s structure should follow this strategic path. Second, minimize the layers, and go for a flatter structure. This will enrich the roles, and speed up decision-making; implementation; and communication. Third, define the roles in the structure with high

autonomy and accountability. This will help managerial learning and development, as well as performance and potential evaluation.

The three don’ts are as follows. First, listen to the government, represented by the ministers, secretary and other officials, in their ‘ownership’ role, but not be over-influenced by their preferences, likes, and dislikes. Second, do not design the structure to just accommodate the existing people, but develop the people for the right structure. Third, do not go by present competence, performance, and productivity levels, but build in expectations of learning; and supportive technologies, system, and processes.

Lack of succession planning has had negative fallout on many businesses, especially family-owned ones. How critical is creating a leadership pipeline?

A leadership pipeline is necessary even for mature, well-established businesses. We could see the turbulence in General Electric, recently, when a handpicked successor was let go, before his term. The pipeline is more essential for Indian firms, for the expected high-growth environment of the next ten to twenty years. Even more so for family businesses, many of whom have a competitive disadvantage in attracting and retaining top professional talent. Actually, family businesses need two different pipelines. One, the usual managerial leadership pipeline, for planned succession up to the levels of business and functional heads. Second, a family leadership pipeline, to eventually take over the ‘internal governance’ role from the outgoing elder generation.

What makes a good manager? Should they be specialists, or generalists?

Many managers achieve their own agreed annual goals. But, this is not enough. A good manager should wear various hats, in the following order—the total organization; her/his division; department; and location. He should be actively learning and growing self towards higher responsibilities. He should identify and develop high potential executives under him, and release them when needed, for the organization’s leadership pipeline. He should be ethical, articulate, and a good ambassador for his organization.

All managers will begin as functional specialists. A few of them with high functional ‘aptitudes’ may be groomed in a ‘specialist’ career path. The vast majority must be rotated and developed as ‘generalists’. All managers should also make the ascent to being ‘leaders’, and not just coast along as techies or executives.

In his book Managing for Success, Morgen Witzel writes, “Business schools have turned away from the light. They are living in Plato’s cave, studying the shadows on the wall and writing papers about them.” He advocates continuous engagement between management and academia, with both sides committed to learning and knowledge sharing. How would you assess the quality of management education in general?

The balance between interaction with practising management, on the one hand, and academic research and writing, on the other, has been a perennial issue. It tends to come up, periodically. May continue to do so. I recall a session at Stanford Business School, California, in 1965, where we, the students, had done our homework on a solid case study of the Boise Cascade Corporation, a leading paper company; and the top management team of Boise, led by their chairman, met us, listened to our callow presentations, and took our questions, patiently. At Harvard Business School, [during]1965-67, I saw the great potential of the case method, while also aware of the scepticism about the case method at MIT and Manchester Business School, UK. Since then, several innovations have been added for business school-industry connect—videos, films, the net, etc. In India also, starting from my joining IIM Calcutta in 1967, I have seen more interaction between the two partners, although it varies between institutes. Since the economic liberalization in the 1990s, there has been an explosion of management institutes in India. Now, over a thousand. This quantitative growth was necessary for regional and local businesses. There will be some dilution of quality. But, there is also a learning curve. There are different levels of quality; and the MBAs are taken by different segments, according to their quality needs and cost.

How would you envisage a bschool of the future?

The business school of today has already come a long way forward from that of the 1960s. Naturally. That is the law of progress. Future business schools will be even more varied. No one size fits all. The broad elements of change will be as follows. First, preparatory self-learning of the basic concepts of management of functions, disciplines, strategy, and top management. Second, team learning by interactive technology. Third, classroom time used more productively for advanced discussions and explorations. Fourth, a cafeteria approach, where students and employers have a wider choice. Fifth, more stress on startups and entrepreneurship. Sixth, internalization of dharma (ethics); and good corporate governance. Seventh, dealing with the newer challenges of the 21st century, such as climate change; AI, robots, and IOT; terrorism; industry role in national, regional and global development, conflict prevention and resolution. I pray to be reborn into that exciting new world of management!

(As told to Anitha Moosath)