In 2018, faculty members of Bhavan’s SPJIMR, Mumbai, undertook desk and field research on a crucial management subject—what does a good company do to transform itself into a business institution? Six books in a series, Shapers of Business Institutions, are being published, sharing the experiences of and learnings from HDFC, L&T, Biocon, Marico, TCS and Kotak Bank.
The research finding as reported in the books is that shapers of institutions use an eight-set mantra called Mindset-Behaviour-Action (MBA). Two of the mantras are ‘orbit shifting’ and ‘cyclical learning’. This article focuses on these two mantras. Orbit Shifting: An orbit is a predictable, repetitive pathway taken by celestial bodies, like the Earth and Moon around the Sun. Companies too settle into their predictable pathways.
It requires special effort to change that, a strong-willed leader to break free and change the orbit of a running organisation. Anil Naik of L&T demonstrated grit and tenacity by deeply pondering the question: ‘What should be done so that L&T enters the next orbit?’ He focused his attention on the structural changes necessary to increase the company’s scale and redefine its scope. L&T had become the best in the country. The next step was to compete globally. ECC, the construction division, had gained some experience in building complex structures in the Middle East and Gulf countries. L&T dreamt of entering the global market with heavy engineering equipment and hydrocarbon projects.
It needed to take a leap of faith and grow five to ten times larger to achieve the scale in terms of size that a world-class equipment manufacturer would require. He and his team worked tirelessly to set up a new manufacturing facility on the coast at Hazira so that they could export large equipment by sea. Over the years, the orbit kept on shifting as Naik translated his macro vision into a micro reality that transformed L&T. The biggest block to orbit shifting of any form is mindset, which is paradoxically also the biggest enabler. Mindset change allows individuals and firms to leapfrog existing growth paradigms.
Marico was confronted with a challenge when a major competitor attacked its leading brand, Parachute, in the late 90s. HUL backed Nihar with big ad spends and the initial impact was substantial. Harsh Mariwala sat with his team of consultants but after two intense days of creative thinking, nothing dramatic emerged.On digging deeper, the mindset gravity emerged. The organisation had settled into a defender mindset and as a result, most of the thinking and ideas had been unconsciously guided by the defence mechanism. Once Marico’s leadership confronted the real issue, they took a conscious decision to shift and think of an alternative approach of attack.
They worked with the powerful conviction that if they could not muster resources, they could win with their ideas. This mindset shift resulted in waves of innovation that led to Parachute acquiring the highest market share in its history. Marico even went on to acquire Nihar a few years later. Cyclical learning: This is a simple learning mechanism that all of us follow almost intuitively. It means you act, make mistakes, review what went wrong and work on it again. But it is not simple for a business leader to follow. It takes one with vision to follow and practice this simple principle at the organisational level. Every business goes through cycles of boom and bust but a shaper knows how to keep the business agile and navigate through the lows.
When HDFC started as a housing mortgage company back in the 1970s, it prised open a new market segment in India. There was no precedence to guide them on whether their customers would pay back or default. HDFC resorted to cyclical learning. It needed to choose customers wisely and ensure that borrowers had repayment capacity. It invested in training managers, sending them to UK’s building societies like Abbey National and Halifax to learn about robust credit appraisal systems.
Once the company mastered housing finance through cyclical learning, HDFC was ready to enter other financial services. HDFC entered banking, mutual funds, insurance, asset management, property funds, education loans ... and the list is growing. Clearly, it has shifted orbit several times but learning by doing and cyclical learning remained at the core. Conclusion: Much business research is devoted to finding a ‘mantra’ in the context of that company and country. Several books are written on how you can convert your business from ‘Good to Great’ and ‘Built to Last’. Naturally, readers are interested in learning the formula of what works, why and how.
A new book, Beyond Great: Nine strategies for thriving in an era of social tension, economic nationalism and technological revolution has also appeared. The truth is that organisational transformation has three components—task agenda, context and culture. The six Bhavan’s SPJIMR books may well be the first research on how professional Indian companies can become superb Indian institutions. (During his 50-year career, Gopalakrishnan had served as Director, Tata Sons and, before that, as Vice Chairman, Hindustan Unilever. Together, the authors have written the book ‘How Anil Naik Built L&T’s Remarkable Growth Trajectory’)
R Gopalakrishnan
Author and Corporate Advisor
Pallavi Mody
Professor, Economics, SPJIMR, Mumbai
(rgopal@themindworks.me; pallavimody@spjimr.org)