Megalomania plus cult debacles of Enron, Tyco, and WorldCom became clear in hindsight–could they have been anticipated as the symptoms developed? What about Yes Bank, Jet Airways, Kingfisher, and the smoke signals from Patanjali? Recall a megalomaniacal Voltas leader in the early 1980s, whose behaviour with colleagues was arrogant, who dissed the Tata way of management, made tall claims, and left a trail of debris for successors to clean up.   

Nations, like companies, can also fall into the megalomania plus cult trap.

Megalomania

In 1876, Ottoman Caliph Abdul Hamid II acceded to the throne after Murad, his brother, was deposed. Coming after the resultant chaos, Abdul was expected to be a liberal reformer, but he turned out to be a narrow conservative. When the Christian Armenians agitated for their cause, he turned a blind eye when Kurdish goons, Hamidaye Alaylari, eliminated Armenians. His secret police, Umur-u Hafiye, arrested his opponents to prevent dissidence. He faulted his predecessors’ liberal reforms, tanzimat, and proposed a pan-Islamic ideology.  Pointing to external threats, he implemented istibdad, reducing ministers to assistants, and concentrated power unto himself. His regime was a period of decline.

As the Nazi storm clouds gathered, visitors to Germany in the 1930s included distinguished personalities like Charles Lindbergh and David Lloyd George, even the Maharaja of Patiala.   Through ubiquitous propaganda, residents and visitors were harangued about the pernicious effects of historical injustices–Versailles Treaty, Weimar regime, and Jews, for example. Disenchanted with their own struggling democracies, or by the emerging Bolshevik threat, many visitors ignored the visible dangers. 

Julia Boyd (Travellers in the Third Reich, Elliott & Thompson, 2017) aggregated the writings of ordinary travellers. Adolf Hitler claimed sole credit for all positive developments and blamed someone for all frailties; he was lauded by his cult-like circle of sycophants. Large corporates like Krupp and IG Farben are thought to have supported him. Hitler gloated in a ‘soup’ of megalomania and cult, while common people experienced the relentless rise of religious strife and fascism.  

Germans said later, “Wir haben das nicht gewusst.” (we had not known all this). They could sense the deep racial turmoil but suppressed the thoughts because (i) foreign dignitaries were received with great fanfare, (ii) their business interests were advanced, and (iii) particularly Americans would not comment lest their own track record with blacks could be raised.  

Cult

A cult, usually headed by a powerful leader, is an organized group, which dominates its members through psychological manipulation and pressure strategies. Cult leaders are dangerous because they rely on deception and are psychopaths. 

Do megalomaniacal corporate leaders like Harold Geneen (ITT), Lee Iacocca (Ford and Chrysler), Jack Welch (GE), and Carlos Ghosn (Renault Nissan) qualify as cult leaders? Or Maharishi Mahesh Yogi, Chandraswami, Osho Rajnish, and Baba Ramdev, all of whom built huge business empires? The Mormon Church is reportedly one of the largest landowners in America. The global revenues of faith-based organizations were estimated in 2016 at USD 400 billion, not far from Microsoft or Amazon. (The Divine Economy, Paul Seabright, Princeton, 2024).

Warning signals

Despite inevitable ambiguities, stakeholders must read and interpret the warning signals. Failure to do so can land the institution in dire straits; some, not all, of the following seven characteristics are usually visible and palpable among such leaders: (i) become authoritarian, (ii) have a low tolerance for criticism blaming others for conspiracies (iii) happily accept praise from domestic and foreign sources (iv) enjoy the limelight and preen themselves for photo opportunities (v) love their admirers who laud the leader with superlative descriptors, (vi) make statements as inalienable truths, and, (vii) finally, they are scornful of alleged failings of predecessors with themselves trying to neuter the consequences.

We box our leaders into a moral binary—all greatness, or all sin. The reality is that it is a mix, and what you see is what you get. You must interpret the signals–ignore them at your peril. Is Elon Musk a brilliant entrepreneur, a disaster, or both? What about Sumner Redstone of Viacom? Or his daughter, Shari Redstone, of Paramount? Are PayTM, Byju or Ola start-ups or upstarts?  

Constructive scepticism and stakeholder alertness are essential in such situations–food for thought in an India that is racing to join ‘developed’ status soon.

The post Megalomania plus cult is dangerous. appeared first on The MindWorks.

Harvey Weinstein is charismatic. As a film producer, he is also a cult figure. Since upcoming youngsters believe that association with him is worth a huge price, megalomania sets in. Watch the Netflix movie about Harvey Weinstein to appreciate the cumulative effects–t is titled She Said.

Megalomania

Authority derives from three sources. First, and oldest, is charismatic authority, which derives from achievements, character, heroism, and demagoguery, like Alexander or Cyrus. Second is traditional authority, which, for example, facilitates acceptance of the son of the founder as the new CEO in a family-managed enterprise. Third, and most modern, is rational-legal authority, which imputes authority to an administrative position, for example, an appointed judge or bureaucrat. There are other definitions, but these are the important sources of authority that are at the root of megalomania.

Charisma

According to sociologist Max Weber, charisma is the perceived supernatural quality of an individual that sets that person apart from other human beings. For centuries, charisma (a subjective perception) and rationality (an objective reality) could not coexist. Weber opined that the triumph of post-enlightenment western society was that the individual and office had been separated through a rational view of authority. Charisma is like the price of shares; it is based more on future expectation of performance. This is why celebrities recommend products ranging from underwear to pan masala. Their charisma is assumed to transfer to the product.

Readers would be familiar with the charisma attributed to business leaders like JRD Tata and Keshub Mahindra. From the world of gurus, there are Sri Sri Ravishankar and Sadhguru. Politics, films, sports, all these fields produce charismatic heroes. A few of them live up to the image, but many are seen, especially with hindsight, to have been incompetent, toxic, or fraudulent.

Cult

It is an organized group whose purpose is to deify an individual. Members are manipulated through psychological and pressure strategies, and they brook no criticism of their leader. In turn, the leader nurtures an imagined existential threat from unnamed outside forces. The cult members regard the leader as the exclusive authority to know the ‘right’ path. Such leaders love praise for sure.

During his lifetime, when Gandhiji was referred to as Mahatma, he expressed his disapproval of being so called. While he was alive, Jamsetji Tata did not brand any venture as Tata. His early ventures were Alexandra Mills, Empress Mills, and Indian Hotels. After his death, his successors associated his name with new ventures. Through the practices of his successors, TATA became the most admired and valuable corporate brand in India, worth several billions of dollars now.

Too much or too little of a good thing is dangerous. Hence the value of moderation. In chapter 6, verse 17 of the Bhagavad Gita, it is stated, “Yuktahara Viharasya, Yukta Chestasya Karmasu, Yukta Swapnava Bodhasya, Yogo Bhavati Dukhasya”, which is a call for mitigating sorrows by moderation in eating and recreation, by balance in work, and by regulation of sleep.

All combined

Why is the combination of cult, megalomania and charisma toxic? Because the leader starts to believe in his divinity and defies mortality and fallibility. The leader, who is trapped in a syrup of megalomania, charisma and cult, displays what author Morgen Housel terms as “the dumber side of smart people.” These are: first, very smart people try to intelligently explain every little event, like why the stock market moved up or down yesterday; second, smart people feel so much pressure to maintain their intellectual reputation that they fail to change their minds even when it is called for; third, being smart makes it difficult to listen to people, especially if you believe that they are less smart than you!

Which is more dangerous, megalomania, charisma or cult? Charisma by itself cannot be considered dangerous. When a charismatic leader acquires a cult status, and, further, becomes megalomaniacal, then beware. You have a sure recipe for danger.

The post Toxicity of charisma, megalomania plus cult appeared first on The MindWorks.

*The writer is an author. His latest book, JAMSETJI TATA—Powerful Learnings for Corporate Success. Coauthored with Harish Bhat, was published in July 2024. His ID is rgopal@themindworks.me

During the highest growth years of India during the 2003-2008 period, I held the view that India is now unstoppable. My view today continues to be optimistic in the long cycle, but with bumps along the short cycles. Russian economist, Nikolai Kondratiev, had argued that nations move according to the waves of long cycles. People usually think about the shocks and imperatives of short cycles, but these occur within that long cycle.

India liberalized its economy approximately 15-20 years after China and has been less directive with reforms compared to China. How do we compare?

Around 2005, I reckoned that India was about 20 years behind China, based on consumption per capita of shampoo, soaps, electronics, steel, automobiles and so on, rather than macro-economic data. I still think that India is about 20 years behind China.

Twenty years ago, China consumed 220 million tons, and today, India consumes 175 million tons of steel. China now consumes 750-800 million tons of steel, but the per capita steel consumption in China is declining as the build-out of infrastructure has peaked. India’s per capita steel consumption doubled in just the last decade. In two wheelers, China and India are already level. China and India both consume about 18-20 million two wheelers per year. This rise of India is a part of the long cycle of the rise of Asia.

The Long Cycle:  

The Russo- Japanese war of 1905 was the start of the Asian long cycle. In 1904-1905, the Japanese definitively defeated the Russians after centuries of western expansionism, colonialism, and mercantilism. The battle of Tsushima is famous because after centuries, an Asian empire defeated a European empire. In the early 1900s, Europe plus America accounted for over two thirds of the global GDP. Since the Russo-Japanese War, the west has declined to about one third, whereas the ‘rest of the world’ has climbed to two thirds! This is what I mean by the long cycle.

The master narrative for Asia changed after 1905 from ‘we are subservient’ to ‘we can overcome.’ Historians trace the influence of this event on litterateurs and intellectuals like Rabindranath Tagore, Bankim Chandra Chattopadhyaya, and Mahatma Gandhi in India, and Lian Chichow, Sun Yat Sen and Chiang Kai-shek in China. After 1905, other Asian nations rose sequentially through the long cycle. First, Japan, then Taiwan and South Korea, followed by the Asian Tigers in the 1970s onwards, followed by China. India has been on the rise over three decades.

A new master narrative was written after India’s independence from being a colonial subject to becoming an independent nation undergoing the challenges of consolidation and staying together. It is a miracle that, compared to other emerging independent nations, our multi-ethnic, multi-lingual, multi-religious India has stayed largely democratic and intact notwithstanding its imperfections. The focus from 1947 till 1991 was to hold together in the face of centrifugal forces. The leaders from 1947 did a superb job of this.

In 1991, with economic liberalization, the Indian master narrative was rewritten. What we are seeing since the 1991 period is the emergent nature of India within the longer Kondratiev cycle of Asian resurgence—growing bigger, showing confidence, and impacting the world. This master narrative is likely to continue playing out for a few decades ahead.

The Short Cycle:

During the last 20 years, the Indian stock market has returned more than 13% CAGR in USD terms, higher than any other large stock market. [1] Considering even the last 30 years’ data, Indian stock market has returned handsomely, and second only to US among the world’s ten largest stock markets.

The growing infrastructure investments within India and, likewise, the growing investors’ confidence both reflect in increased FDI inflows. From about USD 30-35 billion per year in FY 13, net FDI inflows have doubled to about USD 70-80 billion in recent years, representing 2-3% of an increasing GDP.

Over the 30-year period since 1990, corporate tax rates have declined from about 60% to about 25%.

In sum, despite the short cycle analytics and reportage about India’s social and political problems, there emerges a durable story of growth on a consistent basis in the 30 years since liberalization.

It may be noted that the GDP growth highs achieved during earlier years of 1991-2013 have not been matched.

Truth be told, an annual growth of 6-7% will not be sufficient for India to reach the status of ‘developed economy’ in my lifetime. This is so despite a contemporary smugness that India is growing fast compared to all her slowing-down peers.

What remains unfinished in India’s agenda?

Per Capita Income: The focus of India’s efforts must shift from GDP (ranked 5^th in the world) to per capita income (approximately ranked 150^th in the world). Increase in per capita income can trigger demand increases with several attendant benefits to the national economy.

Social Sectors: India needs a huge uptick into social investments in primary education and public health. Those states that invested more than the national average have forged ahead. Tamil Nadu more resembles the Southeast Asian tigers at the current stage.

Private Capital Investment: Private gross capital formation has lagged public investment. Ministers have harangued Indian industry to ‘release animal spirits’ but corporate action has not followed. It is worth pondering on the reasons.

Job Creation: If the above measures (and many others) are undertaken, there is a good chance that new job creation will match the uneven population growth in the country. Already the south shows signs of importing workers from outside the south.

Uneven Wealth Creation: India is at the phase of hugely unequal wealth creation. The top 5% of the population, numbering 70-80 million people, are on the fast track, while the others are stuck in the slow track.

India is benefitting from the compounding effect over 75 years, not merely recent decades. We have experienced 50 years of consolidation, and 25 years of the economy creating wealth; we now await what our traditional wisdom demands—a phase of upliftment for all.

For this, among other things, India needs several SHE companies—sustainable, humane, enlightened companies. Depending on a few is not good, especially because some wallow in a strong sauce of viscous and perpetual controversy.

[1] Behold the Leviathan, Saurabh Mukherjea and Nandita Rajhansa, Penguin, 2024

The post Is India Now Unstoppable? appeared first on The MindWorks.

*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.

The post Is business a ‘Living Machine’? appeared first on The MindWorks.

While reflecting about the column on careers and business life, I asked myself what purpose could be served by such an effort. A simple idea, supported by a simple story, could be a positive format for learning and reflection and practising managers could find that useful.

Tarun Natwarlal Sheth, 73, passed away on Sunday 18th July, 2010 at the Bombay Hospital. Tarun probably had as much impact on Indian HR practice as the tallest among his contemporaries. What he could achieve with a smile and humane relationships was phenomenal.

Tarun studied sociology and became a teacher at the newly minted IIM Ahmedabad. He was among the first management teachers to be selected to undergo the Teacher’s Training Program at Harvard, which he completed in 9 months. To the early generation of IIM graduates like CK Prahalad, Arun Nanda, and Labdhi Bhandari, , he was a sort of ‘Tarun sir.’

In 1970, Hindustan Lever attracted him to join as Selection and Training Manager. That is when I first met this ‘smiling Budha of HR.’ From 1970 until 1987 when he left as top honcho of Management Development, he spent 17 fruitful years, serving under chairmen like Vasant Rajadhyaksha, T Thomas and Ashok Ganguly and under the watchful eye of his mentor, the late Dr Ranjan Banerji.

Tarun was a deep thinker on his subject, so he had a point of view. His credibility as an HR professional was first, that he solved problems with a disarming smile but he did not pretend to solve all problems; second, that he never carried his unsolved problems as furrows on his brow; third, that he could express disagreement agreeably. Above all, he never seemed hassled; it was as if he knew his own mortality. Not many professionals could display this combination of qualities in HR or any other function.

To gain industrial relations experience, he moved to the restless Sewri factory during the 1970s. Out of touching sweating shoulders, he understood human resources differently, at the grass roots; he did not want to be a mere theorist. He was always included in Unilever’s global exercises to figure out latest practice in HR. Sound organizational structuring and span of control became his speciality in the 1980s. Sometimes under pressure with his bosses on job classification, he would win his point of view by praising the boss first, and then pointing out the dangers of a particular decision. In an aggressive work culture, he was a balm. He was ‘agony uncle’ to generations of Lever managers.

Surprise of all, in 1987 at the age of 50 with four girls at home, he became an entrepreneur in the HR business. His wife, Pratibha, had started Shilputsi, a small recruitment firm, named out of a combination of the names of their three lovely daughters. As Pratibha would joke, it took a Brahmin wife to persuade a Vania husband to become entrepreneurial!

And what a firm they both built. Shilputsi still stands tall today. From recruiting, they moved on to consulting on organizational design and change management. There are few firms that have not gained from the sage advice of Tarun and Pratibha.

Tarun will not be remembered for propounding any startling theory. He will be remembered as a humane HR person, an epithet not easily ascribed to HR by line managers. He was a natural leader of hearts. More importantly, he will be remembered by the chelas and students he leaves behind in corporate India. That is the true mark of a teacher: that he taught many to fish rather than to eat fish!

The post THE SMILING BUDHA OF HR: Tarun Sheth appeared first on The MindWorks.

Bitzua, chutzpah, rosh gadol and other Hebrew expressions come alive in an eminently readable and inspiring book called Start-Up Nation: the Story of Israel’s Economic Miracle (Dan Senor and Saul Singer, publisher Twelve, Hatchette Group, 2009). The ideas are highly relevant for innovation capability in general, but for India, especially at this juncture.

Bitzua roughly translates into ‘getting things done.’ Israel’s first leader, David Ben-Gurion, epitomized the word because he exhorted citizens of his newly formed country to get on with nation-building by doing and learning rather than forever debating about the right approach. This spirit of ‘try it, just do it’ is all-pervasive in Israel and has led to the country becoming a top destination for R&D. According to Jewish scholar Leo Rosten (The Joys of Yiddish), chutzpah is ‘gall, brazen nerve, effrontery, presumption plus arrogance.” Rosh gadol connotes a ‘can-do and responsible attitude with scant respect for the limitations of formal authority’. Davka is used to describe the response to a threat and means ‘in spite of’ or what Indians might term as ‘kar ke dikhana hai.’

Israel is an incredibly innovative nation. It ranks the highest in the world in the per capita number of patents filed. A partner at A&G Partners, which specialises in building bridges between Israel and Asia, says that even her hairdresser has a patent on an exact algorithm for deducing the right hair shade! 22 percent of the Nobel Prize winners is Jewish; among women who have been awarded the Nobel Prize, 38 percent is Jewish. These are amazing statistics, considering that the number of Jews on the planet peaked at 18 million before the Second World War, and nowadays, number only about 12 million.

So what can Indian innovation learn from Israel? I observed some similarity and some difference, and would like to share a few thoughts.

Similarity and difference: Israel is a multi-cultural society with people of diverse ethnic origins–Russia, Europe, Middle East and Asia. They are garrulous and argumentative. Particularly during the last 60 years, they have lived with a stark fact: that uncertainty from their neighbours is a certainty. The constant challenge to their very being has made them fiercely proud as they seek self-preservation. They are restless in their quest for economic advancement and social progress; they are highly entrepreneurial. They are competitive with one another to the point that sometimes, they give an observer the impression of pulling one other down wantonly. For instance, after the tragic terrorist attack in Mumbai on 26/11, an emotional subject like the renovation of the Jewish Centre at Nariman House has become controversial and there is a legal dispute between the family of the rabbi who was killed and his religious denomination, Chabad- Lubavitch.

Viewed another way, they have the first three of the 4 Cs required for being highly innovative: challenge, creativity and chaos. I will return to the fourth C later.

Now substitute the word Israel with India. Barring an arcane detail, the comments would be correct. India too is multi-cultural and is an enormously argumentative society; India has to spend money on defence because she faces threats to peace from the neighbourhood, albeit much less than Israel. Indians are a restless people, who are incapable of doing repetitive tasks for long; they boast of a long tradition of being entrepreneurial. Finally Indians themselves joke that they are competitive to the point of pulling one other down. Thus Indians have in abundance the first three Cs of challenge, creativity and chaos.

But Indians do not have the rich record of big-scale innovation that Israelis have. As a Chinese American once explained to me, if India can improve in the fourth C, channelization or discipline, her raw creativity will convert into a hugely impactful, process-driven ‘Innovation Engine’.

Innovation Engine: In The Other Side of Innovation, Vijay Govindarajan and Chris Trimble suggest that when it comes to innovation in companies, quite often there is a tendency to focus on a copious generation of ideas. This focus unleashes incredible energy, but the authors argue that ‘focusing on execution is far more powerful’. I wonder whether the Indian Brahminical intellectual tradition, which rewards ‘thinking’ more than ‘doing’, could be an underlying reason for Indians’ penchant for creativity at the expense of disciplined execution.

The authors point out that continuous improvement and operational innovation are best performed by the existing structure, which has been tuned to be an economic ‘Performance Engine’. Ongoing operations have already been programmed to be repeatable and predictable, so continuous improvement ideas are easily absorbed into an operational Creative Idea–Execution cycle. Many would agree that continuous adaptation and improvement, at times referred to pejoratively as jugaad, is a strong point among Indians.

A lateral or break-all-the-rules idea requires a differently oriented organisation, called the ‘Innovation Engine’. Quite the opposite of the ‘Performance Engine’, this ‘Innovation Engine’ must encourage challenge, must be hugely experimental and must accept failures. If a breakthrough idea is pushed from the stage of Creative Idea to Execution without a special Planning Phase in between, then the idea loses its zing. With an incremental innovation, this risk is reduced by the well-tuned planning activity of the ‘Performance Engine’.

Kiran Mazumdar-Shaw of Biocon says, “Innovation is about applied creativity but by natue, it can be incremental or experimental/breakthrough.” She narrates how Biocon evolved in a planned manner from enzymes to import-substituting insulin to insulin analogues and is now, daring to work on breakthrough oral insulin. “We fully realize that we may not succeed in this audacious endeavour,” she says in a matter- of-fact way.

Innovation culture in any organization evolves through four phases: first, it is ‘Bureaucratic’, and then it evolves into ‘Controlled Creative.’ Many Indian companies are at about this second stage. The third stage is “Daringly Creative’; Indian examples are mentioned later. The high and final point, to which Indian companies should aim to reach, is ‘DCD–daringly creative and disciplined.’ In this evolutionary journey from controlled creative to DCD, India can learn from Israel by adapting the behaviours of bitzua, chutzpah, rosh gadol and davka. We must create in our companies a sort of ‘Cultural SEZ’ called the ‘Innovation Engine’ where planned irreverence can be practised.

India has such a track record: we have been incredibly successful in executing some daringly creative ideas, but there are not enough of them. Davka and chutzpah were displayed when America denied India the technology of the supercomputer. As the Washington Post wrote, an ‘angry India’ set out to develop the Param supercomputer. Dr RA Mashelkar often says that India should be permanently angry. India demonstrated during the Green Revolution the same davka and rosh gadol when America suspended the PL 480 shipments.

India has produced DCD icons, who practised being daringly creative and disciplined: Vallabhai Patel and C. Subramaniam in public life, Ratan Tata and E. Sreedharan in industry and infrastructure, and Raghunath Mashelkar and MS Swaminathan in science and technology. Our academic curriculum in management and our national folklore in innovation should progressively shift the fulcrum of focus to this fourth C of channelization—which involves learning how to create an ‘Innovation Engine’ to plan and execute risky ideas, which may not get nurtured naturally in the ‘Performance Engine.’. Coupled with the existing presence of the first 3 Cs of challenge-creativity-chaos, Indians can then aim to deliver and celebrate breakthrough innovations in the coming decades. The future for Indian innovation is bright.

The post INNOVATION NEEDS MORE BITZUA AND CHUTZPAH appeared first on The MindWorks.

The word ‘parenting’ conjures visions of nurturing and inspiring; it does not connote involvement with and intrusion into any and everything that the child does. Parenting varies with the age, health and capabilities of the child. Especially with healthy, well-performing wards, the parent learns how to remain interested without getting involved, how to be there when needed without being overbearing. The child has obligations to the parent as much as enjoying privileges.

These ideas can be applied to the relationship between a company and its subsidiaries.

India’s aggregate economic growth has been impressive, though issues of the unequal prosperity and lagging social development cry out for attention. The private sector is leading the growth effort and is dynamic with activities in acquisition and consolidation in both the domestic and overseas markets.

When companies develop rapidly, the organization structure gets stressed and the inter-relationship among its constituents begins to inhibit growth. If there is a corporate centre, how will it interact with the constituents without becoming overbearing or intrusive? How will the corporate centre add value to the constituents and avoid becoming a stumbling block?

Companies in other nations have faced these issues and there are lessons to be remembered. I will cover two perspectives: historical and intellectual.

Historical Perspective

The concept of operating divisions/companies and their relationship with the corporate centre developed before the Second World War when some American corporations had grown too big to be run on a functional basis. Alfred Sloan is considered an early practitioner of the concept by implementing the multi-division, multi-business concept in GM with great success. The experiences of Du Pont and Standard Oil added to the understanding of these ideas.

Thus for the first time, a conceptual separation occurred between business-level issues and corporate-level issues. There was a rapid proliferation of divisionalized companies after the war. In his book Strategy, Structure and Performance, Richard Rumelt (1974, HBS Press) reported that among the Fortune 500 companies, the percentage of divisionalized companies rose from a low 24% in 1949 to a stunning 80% in 1969. May be it had become a fashion statement to have a divisionalized structure!

Peter Drucker wrote The Practice of Management in 1955 in which he had put forth the idea of the ‘general manager’ as one who had mastered the general principles of management. These could be applied in any business setting. The thinking was that the human and conceptual skills of a general manager could more than make up for a lack of domain or technical skills. These ideas gave a further fillip to the management concept of diversification.

When I began my career, I was in awe of successful conglomerates like Litton Industries, led by Roy Ash, and ITT, led by tycoon Harold Geneen. The American experience drew great admiration in Europe as well. The magazine Management Today carried an adulatory article by British writer, Robert Heller, “Today Litton Industries is a household word; ‘doing a Litton’ is becoming accepted shorthand for what Britain as a nation and British companies as private enterprises require—harnessing of new technology to practical application and dynamic business growth.”

By the early 1970s, a large number of the Fortune 500 companies had diversified, some into related areas and some into unrelated areas. As the stable economic climate of the 1950s and 1960s gave way to the turbulence of the 1970s, huge challenges arose from volatile exchange regimes and oil-driven inflation.

Diversified companies came under pressure and portfolio models like the BCG model evolved to address the challenges. Raiders like Carl Icahn and T Boone Pickens demonstrated that they could break up large, diversified companies and demonstrated that the sum of the packages exceeded the whole. The management world was ready for the ‘core competence era’; being very recent, I will not delve into its evolution.

Thus the subject of corporate organization structure has not stood still; over the last half century, there have been waves of thinking about divisions and conglomerates. The search for a sound and lasting basis continues.

But the more subtle point is that there may not be any sound and lasting model in the first place. How to organize a conglomerate is an evergreen subject, worth reviewing every so often as the economic climate changes with increasing rapidness.

Intellectual Perspective

When I use the expression ‘division or business’, for the purpose of this article, I include all three types of structures in which a sub-group of a larger management group is engaged in serving customers of a defined kind and operating commercially within an identified market space. The legal status may be of an internal division in a multi-business legal entity, as within GE; or a separate legal entity with 100 percent ownership by the parent; or a separate legal entity with part ownership by the parent. Admittedly there are differences, but for this brief article, all of them are regarded as children of a parent.

The concept of the individual business strategy is well understood by India Inc after liberalization. Business strategy becomes explicit by answering three questions:

• Who are our customer segments?
• How will we service them with a distinctive proposition?
• How will we earn a value surplus?

The concept of the corporate strategy emanates from answering three different questions:

• In what businesses should the company invest its resources, either through ownership, minority holdings, JVCs or alliances?
• What distinctive and beneficial influence will the parent offer its subsidiary?
• How will this parent add more value than any other parent?

Thus corporate strategy is at the corporate level, what business strategy is at the business level. Through its distinctive competitive advantage, the business unit must deliver value surplus to the parent. Likewise a company must deliver to the subsidiary a distinctive parenting advantage.

Corporate strategy tends to be too general, for example, to allocate resources, to offer challenge and to give a second opinion. So how do you make the corporate strategy specific? You do this by making the strategy explicit and almost contractual.

Nurturing, inspiring and defining the heartland

Three characteristics constitute good corporate strategy.

The first feature of good corporate strategy is the company’s distinctive parenting value, which is equivalent of a parent nurturing the child. For example, when Tata Motors, as a parent, helped its fledgling automotive software business, Tata Technologies, to go global through the acquisition of INCAT; or when the Tata Global Beverages agreed to explore with PepsiCo their shared vision of an emerging segment for healthy beverages.

The second feature is the parent’s value creation insights which are about inspiring the child, example: identifying opportunities that the business management has not perceived or unlocking of value that can be beneficial. So when the parent encouraged Tata Steel to unlock value by selling its power generation assets to Tata Power, a mutual win-win situation was created.

The third feature of corporate strategy is defining the heartland business of the company. Unilever did it by stating that it “seeks to serve the everyday needs of everyone, everywhere.” Conglomerates tend to be broad as Tata has defined its seven segments of business. More importantly, a parent may define what it will not do as a business, like entertainment or liquor or cigarettes.

In the years ahead, business leaders will spend more time agonizing about the parenting value of the corporate centre to the operating companies/businesses.

The post COMPANY MUST ADD VALUE TO SUBSIDIARIES THROUGH EXPLICIT ‘PARENTING’ appeared first on The MindWorks.

“Think with a blank sheet of paper. Treat India as a multi-dimensional resource and not merely as a consuming market for your readily available technologies and products.”

There is tremendous interest about India among global companies but they face dilemmas. Many have a global organizational structure, not country-oriented and this inhibits their ability to get the best out of India.

India is distinctive enough to be dealt with differently. For example, for over a decade, the general expectation has been that India’s retail trade will” modernize rapidly. But India has turned out different. During the mid 1970s, there were 2 million grocery/mom-and-pop shops for a population of 550 million. Today there are 8 million shops, catering to 1.2 billion people. Unique among countries, India has achieved a dispersion of retail trade.

Indian business leaders informally advise global companies about their India strategies. I reviewed the advice that they give and this is what I heard: “Think with a blank sheet of paper. Treat India as a multi-dimensional resource and not merely as a consuming market for your available technologies and products.“

I have listed five points to elaborate.

Come with the spirit of exploration

An explorer company enters India to develop all the possible business interests it can within that economy —buy, sell, develop new products etc. To be an explorer, a global company will compel its local leaders to take total business responsibility with the facility to tap expertise in global headquarters.

In contrast, a settler company treats India as one more opportunity to sell its products and to deploy its competencies. The settler has a sharp sense of his core business and appears narrow in the context of an emerging market. With good intent, the global parent connects its local leaders to cross-border support systems inadvertently resulting in a diffusion of responsibilities.

Here are examples of successful explorer companies in India.

Unilever long ago adopted a policy of Indianising its management, its capital, its research and its manufacturing technology. This policy stood the company in good stead for the long period for which it practised the policy.

Texas Instruments entered India in 1985 when the license permit Raj was still in existence. They placed a bet on Indian engineering talent in chip design and digital signal processing. Texas Instruments India has several break-through innovative offerings for the Indian and global markets. Texas Instruments did not come to India as a farmer, but explored India as a resource.

IBM re-entered India after liberalization. Within 20 years, IBM has 160,000 employees in India, a tad less than the USA. These employees are delivering software wage arbitrage as well as high level R&D work.

GE has research facilities here. Its Jack Welch Technology Centre employs 5,500 scientists, who have applied for 1,000 patents during the last 10 years. GE earlier was organized by SBUs with an ambassadorial country manager. In a dramatic move, GE has appointed a full line country head who responds directly to the global CEO.

Devolve more and clear local authority

In the past, global companies gave their India-based CEOs considerable autonomy and the space to disagree constructively. I see less of that in the last twenty years as India has liberalized. Global companies matrixed their organization precisely when autonomy and entrepreneurship could have play a positive role. From what I have seen and heard, many global companies in India have re-structured themselves into spaghetti of shared relationships and responsibilities with regional and global headquarters. It is often not clear to an observer who is responsible for what.

While interviewing managers of Indian subsidiaries of global companies, I have found that many are frustrated with their narrow jobs because the regional office does many things. In one case, a talented finance director resigned because he was basically a glorified book keeper. His only career growth was to accept an overseas posting.

In earlier days, a foreign posting had a cache; indeed a job in a global company was prestigious. Not any longer. The vigour of Indian companies acts as a lodestone for employees who feel the pulsating energy of 8-10 percent growth and the buzz of a ‘happening’ place when they work in India, and Indian companies are hugely attractive employers.

Further global companies paint all their subsidiaries with the same policy brush. For example, an Indian subsidiary had developed a very interesting ‘adjacent’ business as a growth initiative. After allowing the product to develop for 5 years, an edict was given to dispose of the adjacent business—not because it was losing money or not delivering, but because in a HQ re-appraisal, anything that did not fit into a defined ‘core business’ was to be eliminated!

In another case the Indian company had little freedom to make its extra cash work harder.

Use India as a significant frugal innovator

Because of history and culture, Indians are natural innovators, even though they are a bit undisciplined! As a visiting American Chinese entrepreneur from Silicon Valley recently told me, you need 4 C’s to be an innovative society—Chaos, Creativity, Communication and Channelization. India has plenty of the first three but lacks the fourth. Global companies bring the fourth skill. The combination can be terrific as the examples of Texas Instruments, GE and IBM demonstrate.

Someone has made ‘frugal innovation’ famous as a global world. Jeff Immelt and Vijay Govindarajan have coined the term ‘reverse innovation’. Clearly there is an opportunity.

In the environment of the global managers, it is not possible for them to think of an automobile priced at $2,500 with emissions less than a 2 wheeler! Or to design a 130 teraflop supercomputer for $30 million as the world’s first privately funded supercomputer. These are as unlikely as an Indian village scientist dreaming up a new racing car.

Emerging capital markets could become interesting in future.

The Credit Suisse Global Investment Returns Yearbook 2010 suggests that between over 25 years from 1985 to 2009, Indian equity markets yielded far greater returns than the stock markets in developed economies. The Indian stock market has a higher P/E ratio compared to many other markets, including Asian markets.

The Indian capital market is over $1 trillion, in excess of the GDP. Admittedly it is not sufficiently broad-based and deep, but it is efficient enough to do transaction settlements as fast as the fastest stock market in the world—what they call T+1.

In the future global companies can use this to advantage by listing their Indian subsidiaries here. To be a bit adventurous, even the global company can be listed here. This is no pipe dream or crazy idea.

To get more visibility and show commitment, Standard Chartered became the first foreign company to list the parent in India through an IDR issue. The bank was already listed in London and Hong Kong.

But what do I see around me? I see global companies trying to delist their companies from the stock market or buy back their shares. To be in one of the world’s fastest growing economies, which is attracting $60 billion of foreign investment every year, for a global subsidiary to buy back shares, suggests a lack of imagination. Surely there a missed opportunity!

I also believe that a listed company has a better chance of developing well-rounded managers. They gain a broader exposure to be general managers. Early in their career, they learn to deal with cash flows, balance sheets, multiple stakeholders and public concerns.

That is one reason why Unilever in India is perceived as a ‘CEO factory’. What is common among the following seven companies in India? Bosch, Cadbury, Glaxo, Lafarge, Nokia, Hindalco, Star News, Tata Sky and Tata Rallis? They all have Unilever alumni as CEOs!

Use independent directors on local boards more strategically

I have knowledge and experience of how Indian listed subsidiaries use their independent directors. The local board and listing disclosure requirements are treated as a ‘necessary chore’. Independent directors are sought to be engaged with sketchy board meetings and occasional dinners. Few global company CEOs seriously engage their talented independent directors in a strategic debate about how the Indian subsidiary can better benefit from a liberalizing India and then follow through with real action.

This denies the global leadership the opportunity to listen to embrace the diversity of opinion. You cannot miss out on listening to such talented directors if India really matters to your global company!

The post How global companies can better ride the India wave appeared first on The MindWorks.

(Tell people that you work for a company in automotive, electronics or computing and they understand. Tell someone, “I work for a company that produces nitro-cellulose, surfactants and starch-based polymers”, and watch the clueless look. For the large part, chemical companies are faceless and incomprehensible.)

To emphasize how intimately chemicals touch our daily lives, I wrote an article titled, ‘Live one day without using chemicals’ (ET, 10th Nov 2008): from food, clothing, paints, fertilizers, medicine, cleaning products, to construction and transportation. The global chemical industry is a whopping $3.5 trillion, about 6 percent of world GDP. In India, the $83 billion chemical industry is as big as steel and auto together. Though the affairs of this industry are little understood, it should be of interest to many.

The chemical industry is at a fork in its journey. The industry has been single-mindedly obsessed with innovation. The results have been fabulous. To take just one example, the path-breaking ammonia synthesis process developed by Fritz Haber and Carl Bosch in 1909 for urea has resulted in enough food for today’s 6 billion. Arguably this is the technology that made the greatest difference to mankind in the last 100 years.

In the future, however, the industry has to balance innovation with consumer-intimacy and sustainability.

The image of chemicals

In addition to everyday products the industry also produces value-adding, industrial products: polymers, catalysts, coatings, petrochemicals. However, its consumer connectedness and environmental image are weak.

Two surveys illustrate the chemical industry’s lack of consumer connectedness and poor communications. In an image survey by TSMG, the auto industry conjured mobility and evoked feelings of speed, telecom connected with social warmth and communication, and IT associated with computation. The chemical industry evoked an unclear image with a negative hint. To the query on improving the quality of life, respondents admitted ignorance.

Tell people that you work in the automotive, electronics or computing industry and they understand. Tell someone, “I work for a company in the chemical industry that produces nitro-cellulose, surfactants and starch-based polymers”, and watch the clueless look.

A 2009 brand survey by Inter-Brand also reinforced the lack of consumer connectedness of the chemical industry. Almost every sector except chemicals finds a mention in the list of 100 leading global brands.

Explorers and farmers

Recently I had a philosophical conversation with the President and CEO of Kureha Corporation, Takao Iwasaki, a visionary technocrat. He was sure that the recent crisis and global concerns would trigger an ‘environmental technology revolution’ that would transform the industrial framework of the world.

But what might the new framework be? In my view, as shown in the chart, it means a triangulation of environmental sustainability, consumer-connectedness and innovation. Successful companies in all sectors are gravitating to this triangulated space.

Iwasaki-san said that there were two types of manufacturing companies or activities: hunters and farmers. A company may be one or the other; it may also combine the two types. I prefer the term ‘explorer’ rather than hunter.

Explorer companies produce consumer-facing products as Toyota, Sony and Kao do; consumers are their ‘finds’. Being consumer-oriented, explorers are sensitive to the behavioural patterns and expectations of consumers. They use creativity and ingenuity (read innovation) to capture as many finds as possible. Explorers are highly consumer-connected, B2C type companies.

Farmer companies are focused on what their land can produce. They sell to markets/customers rather than to end consumers. They monitor market prices and will grow/develop any new thing based on customer demands so long as their land (=technology) can do it. Through product advantage, they improve their customer’s offering to consumers. Farmer companies are customer-connected, or B2B companies.

Chemical industry

The chemical industry retains the appellation of chemistry unlike its peer sciences, which have not spawned physical, mathematical or biological industries! As the peer sciences evolved, they began to be recognized through their applications; for example, physics evolved into engineering, optics, and electronics. Biology manifested as medicine and animal health. Chemicals suffer from inadequate recognition, though the applications of chemistry are vibrant and diverse. Unlike other industry segments, the chemical industry sells as much as 80% of its output to B2B customers. For the large part, chemical companies are faceless and incomprehensible.

The chemical industry has too many farmers and too few explorers. Add to this, the occasional environmental damage, and chemicals become the number 1 villain of the future.

That is why the chemical industry is exploring a new positioning within the triangle of consumer connectedness, environment and innovation. Through bio and nanotechnology, the chemical industry can become benign in a transformational path.

Sustainability

Promoting sustainable approaches makes business sense. Sustainability calls for thought about the long-term implications of activities, and to measure the future performance of investment against environmental and social criteria apart from financial criteria. Sustainability means meeting needs of the present generation, without compromising ability of future generations to meet their needs.

ICIS conducted a study in 2009 which spanned over 900 respondents from the petrochemicals, specialty chemicals and polymer segments of the chemical industry, including CEOs. The good news was that the industry was aware about sustainability issues. The worrying news, however, was that most companies did not know what to do or had postponed actions due to more pressing matters.

In the ICIS survey, 60 percent of chemicals customers actually expressed interest in sustainably produced chemicals. However cost was perceived as the biggest prohibitive component of a sustainable program, followed by technical capabilities. Most CEOs in the developed countries worried that making their operations sustainable and developing green products might place them at a disadvantage vis-à-vis rivals in developing countries that don’t face the same pressure. Hence most executives treat the need to become sustainable as a corporate social responsibility, and not directly related to their business objectives.

A study by C. K. Prahalad, Ram Nidumolu and M. R. Rangaswami suggests that sustainability has successfully acted as a spur to profitable innovations. Becoming environment-friendly lowers costs because companies end up reducing the inputs they use. In addition, the process generates additional revenues from better products or enables companies to create new businesses. Smart companies increasingly treat sustainability as innovation’s new frontier.

Lenzing of Austria

Lenzing was set up in 1938, committed to natural fibres (like rayon) from wood pulp. They were pitted against giants like Courtalds and DuPont who made competing synthetic fibres, based on polymer chemistry. Lenzing focused on the consumer and environment by developing solvent-spinning to reduce the environmental damage that rayon-like products caused. In 2004, Lenzing bought Tencel technology developed by rival Courtalds. It is now a focused, highly successful environment-friendly cellulosic fibre company, offering absorbency that the synthetics do not offer—a delightful success story of sitting in the middle in the triangle.

Here is a four point future agenda for chemical companies:

1. Communicate comprehensibly and reinforce consumer benefit even for B2B applications rather than industrial use. Achieve better recall and a relationship with the end consumer. If sufficient brand equity is established, this could even lead to ingredient branding.
2. Focus on sustainability strategies. Emphasize water, energy conservation, reduced carbon footprints and ‘go green’. Even if some technologies are not viable currently, it is only a matter of time before there will be industry standards. Regulations should not be the sole reason to drive sustainability initiatives.
3. Companies should track percentage of sales coming from new products or processes. Research teams should also be tracked on this measure to ensure that R&D spending is effective. Devote a part of R&D to efforts involving sustainability.
4. Leverage next generation technologies like biotech and nanotech.

The post Chemical industry needs more ‘explorers’ appeared first on The MindWorks.

(The consumer demand for quality education is huge. The Indian education market is gargantuan at $ 80 billion per year, about the size of the Indian steel and automobile industries put together. It is highly regulated and under-governed.)

Oblique and indirect ways of solving complex problems abound in economic planning, infrastructure, agriculture, public health and education. Direct solutions do not always work. Oblique solutions often turn out to be remarkably effective. Our brain is wired to seek direct solutions, so such tangential solutions should not be pooh-poohed. But the tangent needs to be clearly articulated.

Yale University’s Charles Lindblom is one of the early advocates of incrementalism when he considered the role of ‘baby-steps’ or ‘muddling through’ in decision-making. Under most circumstances, policy change is evolutionary rather than revolutionary. Lindblom arrived at this view through his extensive study of welfare policies and trade unions across the industrialized world. In 1959, Lindblom wrote that there are two kinds of problems: those that are closed, determinate and with clear-cut objectives, which can be solved through a direct approach. Then there are those that have higher-level, ambiguous objectives which are best solved through an indirect approach.

Two examples of the former are a game of sudoku and the improvement/expansion of an ongoing business. Two examples of the latter are a start-up business and the solving of complex social/political issues. The former can be solved through the direct and rational single-minded focus, while the latter requires the indirect methods of experimentation and discovery.

John Kay has recently written a delightful book entitled Obliquity in which he comments on the tangential achievement of goals and indirect solving of problems. He quotes Jim Collins and Jerry Poras (1994) about how the most profitable companies do not sport direct profit-orientation. They simply do the right things and end up being nicely profitable.

ICI flourished for decades through renewing its interpretation of one consistent and tangential theme–responsible application of chemistry. After the Hanson Trust threat in 1991, the company revised its vision to a direct form, ‘industry leader in creating value for the customer and shareholder.’ Over the next 20 years, ICI declined and vanished.

Led by the visionary Bill Allen, Boeing delivered spectacular results through an oblique approach to profits. Phil Conduit changed the approach ten years ago by stating that ‘shareholder return is the measure to judge us.’ Boeing soon lost the plot.

Kay suggests that at both ICI and Boeing, shareholder value was best created when obliquely sought. He offers the same lesson through the examples of Marks and Spencer, Saint Gobain and Merck.

Two months ago, Unilever CEO Paul Polman sensibly said that he was focused on serving consumers, and that returns and profits would follow. Writers and analysts flayed him. In my view, Polman is right and he confirmed that he would ignore his critics when I queried him.

An even better everyday example concerns happiness. To quote John Kay, “Oblique approaches are the best route to happiness…..happiness is where you find it, not where you go in search of it.” His statement verges on the Vedantic and is very compelling!

Solving problems indirectly

Consider how indirect solutions might work through the example of education in India.

The Indian education is broke and requires urgent attention. If India is to reap the demographic dividend, the burgeoning youth need to be enabled and empowered through education and employability. Otherwise they will become unruly and anti-social.

Universally, citizens and policy makers do not regard education as a business which makes distributable profits. Surpluses can be made but to be ploughed back into infrastructure, curricula and research. Competent institutions abroad renew themselves and compete for excellence. Many nations design policies to achieve this and refer to this as ‘not for profit’ activity.

The Indian state has a different take on ‘not for profits.’ It wants to be involved in controlling the activity to
the point of throttling it. However in the 1980s, a new phenomenon of ‘self-financed institutions’ and of Shikshan Samrat (educational barons) began, if I may quote the Director of IIT Kanpur.

Government has a woolly approach to private participation and surplus. If any institution hires top faculty and delivers terrific pedagogy, it will generate a surplus. The system then officially restricts the surplus to a target level. It is basically a 1970s device, carrying all the woes of price control—corruption, mediocrity, lack of accountability and inefficiency. So entrepreneurs have found a way to get around it

Wherever there is a large and growing market, entrepreneurs will find a way to enter and prosper. Private equity money of $100 million has already been attracted into the Indian education market. There are 10 major players running international schools in the country, many of them in tier 2 and 3 cities. These are outside the purview of policy that restricts promoters from taking a profit. Apart from these, there are opaquely funded institutions that are mushrooming everywhere. The state pretends it does not know of any transgression and the entrepreneur pretends that his actions are acceptable!

The consumer demand for quality education is huge. The Indian education market is gargantuan at $ 80 billion per year, about the size of the Indian steel and automobile industries put together. It is highly regulated and under-governed. Government spend at 3.7 percent of GDP is lower than Malaysia and Brazil (4.5 to 6 percent) but higher than Pakistan and Bangladesh (2 percent). There needs to be more public expenditure and the efficiency/quality needs to improve. At the kindergarten to class 12 levels, 93 percent of schools are public but they account for only 60 percent of school enrolment.

Private expenditure in this market is growing at a sizzling 15 percent per year, an impressive number in one sense but is hopelessly inadequate in another because India has 20 percent of the world’s population but accounts for only 5 percent of the world’s education spending, that too in PPP dollars.

Although government’s intention is that education should be a non-profit activity, private sector edupreneurs (educational entrepreneurs) account for as much as two thirds of the $ 80 billion market.

How did the camel get into the tent?

HEIs can adopt one of several avatars: Trusts, Societies, or Section 25 companies. Irrespective of the avatar, they are allowed to make only a small surplus, which too they must use for the advancement of the HEI. HEIs are heavily and clumsily regulated by government bodies, which fix both students’ intake, college fees and have an influence on the teachers’ salaries.

To the lay person, it would appear that the selling price is fixed, the volume of production is fixed, the costs are subject to control, then where is the scope to earn profits? Enter Indian entrepreneurship: create two tier models so that the regulations can be adhered to by one without sacrificing profits, which are made in the other tier.

These players have come out with creative strategies and innovative structures to deliver value education, make money and grow in this highly regulated space. In the jargon of finance, these private players have dis-intermediated the market. In the process, many of them feel passionately that they are contributing to nation-building by making several Indian youth employable, while generating enough profits to sustain and scale up the spiral of growth.

The lesson here is that you cannot fetter an idea whose time has come. It is part of the middle class Indian ethos to spend on education till it hurts. If the state cannot do it, someone else will. One can gloss over all this as a desirable private-public partnership.

That government has inadequate funds for education is a source of long-standing discontent. In that case, a planned and calibrated liberalization in education should have begun long ago. Government should not set so many controls and hurdles. The nation can definitely adjust to indirect solutions to education issues but with a clear statement of the tangent. It is high time that fuzzy ideas and back door entry are replaced by active and pragmatic policy.

The post SOLVING PROBLEMS INDIRECTLY: the example of education appeared first on The MindWorks.