25th September 2019 BUSINESS STANDARD
(*The author is a corporate advisor and Distinguished Professor of IIT Kharagpur. During his career, he was Director of Tata Sons and Vice Chairman of Hindustan Unilever. His latest book is “Doodles on leadership: experiences within and beyond Tata”, published by Rupa).
Indian CEOs should strategize on the fostering of business institutions rather than just running companies. Institutions are superior to companies, just like forts are superior to modern bungalows. India needs more forts.
Economic growth and job creation are central to a nation. History teaches a truism: that society must be entrepreneurially hyper-active.
A growth nation needs three E’s: enterprise to generate vibrant energy; education, which includes school/college, but also art, culture and skill-oriented forms of intellectual enhancement; and, finally, eudaemonia, the Greek-derived expression for human well-being in terms of health, happiness and relationships. The Roman, Mughal, Vijayanagar, Ming and Ottoman empires exemplify that the latter two Es become elusive if enterprise is weak.
Like Kumbhakarna, our system has finally woken up to ground realities and the central role of enterprise. According to OECD data bases, India increased effective tax rates from 23% in 2013-14 to 30% till last month. No wonder the penny dropped, and thank the Lord for that, triggering the steroid tax cut. The suffering economic patient gasped and cheered lustily, better late than never.
India needs and welcomes short term fixes like the tax cut, but we must remember that this is jugaad economic planning. India desperately needs strategic planning by policy planners and business. In this article, I highlight an important strategic priority that India Inc can consider and act upon, irrespective of policy.
The old ways of creating SLUCs (short-life, unsustainable companies) is fading out, an SLUC being defined as a company which thrives on irresponsible debt leverage, political patronage or is artificially cultured with bountiful and irrational equity. In two earlier columns (27th June and 2nd August)), I had presented the case for Indian business leaders to nurture their companies as institutions. Institutions are superior to companies, just like forts are superior to modern bungalows. India needs more forts.
Here is an alternative metaphor from physiology. Think of the Indian bison or the tiger. Such strong animals are designed and endowed with a stable frame of bones (companies with sound strategic intent and purpose), a body that has a healthy balance between stored fat and working muscle (companies with agility with scale), and, above all, an immune system to fight short-term disease attacks (companies with strong values and high ethics).
These attributes allow an institution to serve society with competence for a century. The secrets of the long-life Gen-C institutions (Generation Centurion) like Tata, Birla, Bajaj, Godrej, Unilever, Ford Motors and Kikkoman guides us about the economic and societal value of long-life companies.
In a research project that I am involved with at Mumbai’s SPJIMR, the faculty are researching institution-building as compared to companies among Gen-L (Generation Liberalization) companies. They identified those that took off into a vertical trajectory during the last thirty-five years of liberalization. The researchers were surprised by the paucity of institution among this cohort group. What makes a company worthy of being an institution? That is the core of the SPJIMR research.
Tata Consultancy is a Gen-L institution as indeed its two eponymous software colleague companies. So also, the HDFC group, comprising housing, banking, asset management and insurance. L&T, Kotak Bank, Titan, Biocon and Marico also weigh in as Gen-L entities, having all leapt into salience and palpable impact during the last thirty-five years. They have generated about 2 million direct jobs, 10 million indirect jobs, and account for a market cap (expressed in Rs lakh crores) of 30 out of 140 total listed on BSE. The ‘renewal rate’ of market capitalization can be thought to be 20% over thirty-five years.
This is just not good enough for the aspirations of our nation or society, we need a renewal rate that is far higher. This challenge should engage the attention of chambers of commerce and management institutes: what does it take for India to create more business institutions with a better renewal rate? Rather than the old style of SLUCs, India needs solid, well run, long-life business institutions.
On a lighter note, I possess a whole library of “Re-XXX India” books—Re-imagining India, Re-booting India, Re-thinking India, Re-engaging India and Re-designing India. My thought is for India Inc to Re-energize India through great business institutions which are solid, resilient and long-life, while delivering societal and economic good in the future.