We need more business institutions, not just companies

My father arranged a thread ceremony for me when I was 11-year-old. I felt important as I diligently followed the elders’ instructions to follow the priest all the time. During the ceremony, my juvenile eyes spotted a few beads of summer sweat trickle down the rotund belly of the bare-chested priest, a bit like a skier would come down the mountain slope. The sweat tickled his belly into a quivering motion, causing him to swipe his belly in one swift movement. Despite having no sweat drops nor a belly, I mechanically repeated his action, causing great laughter all around. I wondered why my diligent action caused smirks. 

Something similar occurs when companies mechanically emulate successful companies. 

Columnist Kanika Datta wrote in Business Standard about how great companies seem to fall no sooner they are declared to be high and mighty by referring to Sumantra Ghosal’s book some 15 years ago about India’s world-class companies. There are other eponymous books about the most innovative, the most admirable and the best-led companies. Indeed, the pink paper awards given to corporate leaders have the same effect — the awarded CEO runs into performance or governance issues soon after being recognised. 

Often, best practices are captured in a formulaic way, a bit like the ingredients that make a dish. By just mixing the right ingredients, a parvenu cannot prepare a tasty dish. A menu is like an art, it is also required. In companies too, the art of emergence must be deployed — it is an art that shapers of institutions deploy to create institutions rather than just companies. 

A recent Korn Ferry study reports that, in the view of investors, barely a fourth of Indian business leaders are ready to lead their organisations into the future. In this context, “future” does not mean forever, but for several years ahead.

So, what is an institution and what do shapers do? A recent book refers to shapers as “wise advocates”. (The Wise Advocate: The Inner Voice of Strategic Leadership by Art Kleiner, Jeffrey Schwartz, and Josie Thomson, CBS, 2019). Institutions and shapers need to be better understood, they are important for India’s growth; the subject is currently a research project at SPJIMR Bharatiya Vidya Bhavan, Mumbai. 

Companies may adopt a system or a nature approach. In the system approach, efficiency and repeatability are prized, whereas in a nature approach, effectiveness and creativity are prized. Competent leaders seek to become efficient and predictable. Institutional shapers seek to become effective and creative. Shapers must be leaders, but the converse is not true. 

Companies, business and entrepreneurship as institutions

Great institutions are more than engineered processes and ingredients, they are live organisms with emergent factors at play, which, in fact, bring an institution alive. Driving a group of companies to higher levels of productivity and competitive efficiency is a valuable skill, called management. Indeed, that constitutes the basis of MBA teaching and research. Such pedagogy and practice produce competent business leaders; society needs spades of such people and rewards them handsomely. Most managers in companies endeavour to become a competent business leader. 

Occasionally, shapers come with a personal motivation that is dramatically different. These business folks break the mold of prevalent thinking, setting an organisation on a new trajectory. 

Shapers appear to operate with the “rainforest” rules, which are quite different from the “cultivated agriculture” rules. In the cultivated agriculture model, you attempt to control and guide the factors of environment to maximise efficiency and replicability. In the rainforest, you accept your environment and from that environment, you seek effectiveness and novelty. 

For this article, I don’t comment on both the centurions (Tata Group, HUL and Godrej Group) as well as the puppies (post 2000s startups). I consider a cohort group of companies that “grew up or dramatically reshaped” from about the mid-1980s. HDFC group, TCS, L&T are amongst the elder siblings, while Wipro, Kotak Mahindra Bank, Marico and Biocon are among the younger siblings of this cohort group. In just a few decades, these seven companies have made huge impact, maintaining a high reputation. There would be more companies, but I mention these as seven institutions for the future. In a few decades, these seven institutions have created over a million and a half direct jobs, another 20 million allied jobs and a market value of $300 billion. Each of these institutions has been shaped by remarkable individuals. 

India needs more institutions and shapers for its undoubted bright future.

The author is a corporate advisor and distinguished professor of IIT Kharagpur. During his career, he was a director of Tata Sons and a vice chairman of Hindustan Unilever. Email: rgopal@themindworks.me.