There are several well-run Indian companies, but only a few qualify as business institutions. A business institution has at its core certain universally accepted values for which it is held in high esteem. It has an innate resilience to withstand tectonic challenges, yet is continuously achieving performance benchmarks. Such transformational leaders are ‘shapers’, who are characterised by distinct MBAs—Mindset, Behaviour and Action—along eight dimensions. In this article, we illustrate two dimensions: Short vs Long Term and Levers of Change.
Short Term vs Long Term: For many leaders, managing the short and long term simultaneously is a great challenge. They are necessary and important for institution building, but how does a leader do both? Our research and writings on six companies—Marico, Kotak Bank, HDFC group, L&T, Biocon and TCS—gave us some useful insights.
Marico’s value statement affirms ‘profit optimisation’. This signals that there will be no trade-off between quality and costs for short-term benefits. For Harsh Mariwala, this commitment meant that the gap between revenues and profits was acceptable so long as the growth line was steeper than the loss line. Marico avoided the common practice of month-end loading of stocks into its channel. Harsh ensured this by installing an integrated MIS that linked supply to channel sales. This commitment to the trade has had a beneficial impact on Marico’s long-term profitability.
At Kotak Mahindra Bank, Uday Kotak’s policy was to take granular steps: “It will be slower, but success will be more solid and sustainable”. All decisions were based on an underlying criteria of value creation. Kotak would often say, “If something did not create economic value, Kotak Mahindra Bank would not do it just to boost the next quarter earnings.”
Anil Naik too was cast in the same mould at Larsen and Toubro. Even as the manufacturing facility at Hazira was taking shape, Naik, looking ahead, got working simultaneously on getting skilled workers by putting in place a master plan for sourcing and training workers: the hardscape, creating capacity by way of a massive fabrication yard and installing machinery, and the softscape, capability building and training manpower, were taken up simultaneously.
Naik’s grasp of the fundamental truth of short-term actions building up to generate long-term value is revealed in his unremitting commitment towards ensuring that the long-term share price reflected the true value of L&T. The true value of a share is determined by growth of business along with profitability and return of capital employed. Naik launched Project Blue Chip, a programme to successfully transform L&T into a blue-chip company .
Levers of Change: A shaper anticipates and exploits emerging trends across all functional areas to galvanise the organisation from complacency to an aspirational mindset. Perceiving the emerging consumer trend towards ‘brands’ in the eighties, Harsh Mariwala engineered Marico’s shift from the traditional business mindset of selling a product to the market to the professional mindset of marketing a brand to the customer. He transformed Parachute cooking oil from a commodity to a differentiated brand through innovative packaging, customised offerings and direct retailing.
At the organisational level, Harsh leveraged the soft power of the human resource function to reshape Marico as an empowered and responsible family of hierarchy-unconscious members, energised by the organisational belief in viewing initiatives on the metric of ‘you win or you learn’. At L&T, Anil Naik perceived human resources as a lever of change for institutionalising employee commitment. Naik was conscious of the strong sense of emotional bonding encoded in the managers of L&T, reflecting the professional values of the founders and many leaders.
Under his leadership, a win-win scheme was devised to convert the emotional equity of the employees to financial equity. This was done by hiving off the cement unit to Aditya Birla Group and transferring the transaction amount to the L&T Employees Welfare Trust. As the company did not have a single owner with large shareholding, this action served to ring-fence L&T from corporate raiders, with employees now having substantial voting rights.
At Kotak Mahindra Bank, Uday Kotak adopted digital technology as a prime lever of change for rapid onboarding of customers with zero account balance through the simple process of a banking app. Kotak Bank’s investment in information technology from the start-up stage enabled the bank to leverage the first-mover advantage when the RBI brought in video-based KYC option and when insurance and mutual fund operations were opened up for banks.
Over the last six months, we have summarised in this newspaper the insights and learnings from a unique research project on institution-building. This has been a rare collaboration among five academics of Bhavan’s SPJIMR and a seasoned practitioner, unique in Indian management thought leadership.
(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 Harsh Mariwala Groomed Marico’, to be published in February 2021)
R Gopalakrishnan (firstname.lastname@example.org; email@example.com)
Author and Corporate Advisor
M Suresh Rao
Professor & Chair of the Center for Entrepreneurship, SPJIMR, Mumbai