By R Gopalakrishnan*
*The writer’s latest book, JAMSETJI TATA: powerful learnings for corporate success, coauthored with Harish Bhat, was published in July 2024.
Is business a ‘Living Machine’?
For over fifty years, almost every practitioner of business management has probably been a fan of Peter Drucker. I am, therefore, like a bhakt in a temple town as I visit his birthplace, Vienna, to participate in the ‘Davos of Management’. The Global Peter Drucker Forum and the Living Machine Institute in Austria have joined forces to reframe The Next Management, titled as “The India Way: Humanism, Longevity, and Compounding Returns.” In recent times, more people have been struck that the capitalist enterprise model, seeded in America, is perhaps broken. What is the model? Why is it thought to be broken?
The centre piece of the capitalist enterprise model is the joint stock company in which the liability of the shareholder is limited. Over the last decades, the single-minded focus of management leaders has increasingly been to promote shareholder wealth on the premise that the shareholders are the owners of the company. Are they, really? The people who aspire, dream, sweat, yearn, and love are usually not the shareholders, but the people who are most affected by the company—community, society, employees, vendors, for example. The current model has evolved over a couple of centuries concurrently with the industrial revolution. When there is a sharp focus on shareholders, there emerges a strong emphasis on efficiency—of manpower, machines, and capital usage–rather than on effectiveness. What is the difference?
Peter Drucker on Efficiency vs Effectiveness
According to Peter Drucker, you need effectiveness to magnify and translate efficiency into results. Peter Drucker emphasized that the sole purpose of a business is to create and satisfy a customer. In his seminal book, The Effective Executive, he had addressed the difference between effective and efficient. Which is more important when it comes to organizational performance? You recognise an effective organization as one which enables ordinary people to collectively achieve extraordinary results. How simple yet profound–to encourage ordinary people to achieve extraordinary results!
Efficiency is getting a lot of things done, while effectiveness is getting the right things done. Further, Drucker wrote that effectiveness, unlike innate attributes such as talent and intelligence, entails a set of practices you can learn. In fact, it’s essential to learn effectiveness because without it, talent and intelligence won’t get you anywhere.
The contemporary capitalist enterprise model, with its excessive orientation to enhancing shareholder wealth, is hugely committed to efficiency, to extracting the maximum out of a given resource. The model treats enterprise almost like a machine, whose efficiency can be enhanced by continuous improvement. Further, too often, human avarice, greed, and hubris get fed into the menu for efficiency. These lead to enterprise failures like Enron and Lehman Brothers–watch the play, Lehman Trilogy, now running in theatres in London and New York. Think of India’s Satyam Computers and Kingfisher Airlines. The efficiency-only trap is a threat to all enterprises that are fixated on increasing market capitalization (unicorn-aspiring startups to please note).
To minimise the risk of getting entrapped into this web, one must consider an alternative model: effectiveness, underpinned by efficiency. In this model, the shareholder is not the lone God for whom enterprise leaders cater. Employees, community, vendors, and many others who work to make the company into a ‘living machine’ feature in the leadership agenda. The reason is that the value from a ‘living machine’ is superior to that from a machine. The markers for a living machine are Humanism, Longevity, and Compounding Results, the theme of The India Way discussion at Vienna.
When Roger Bannister broke the four-minute record for running a mile in 1954 at the Iffley Road tracks, many scientific minds opined that the limit of human endurance will not permit any further improvement to the record. Yet, the human ‘living thing’, through advances in motivation, physiology, nutrition, and equipment have made it possible for Moroccan Hicham El Guerrouj to record 3 minutes and 43 seconds. Living Machines yield more than inanimate machines because of flexibility, adaptation, and human consciousness, which machines cannot yet do.
Here is the catch. Dealing with living machines requires reflection, thought, patience and, above all, time. In the belief that their shareholders will not give them time, enterprise leaders push the fixed machine beyond its limits, breaking the machine rather than training it to adapt and renew. Some Indian companies seem to have learnt this, like Godrej, TVS, Birla, Mahindra, Tata and Hindustan Lever. It has been my singular fortune to have served in Tata and Hindustan Lever, where I learnt the ‘Living Machine’ principles from the grassroots.
It is satisfying to expose the ideas of the Living Machine to a global audience.
