'Paying people won't change a culture'

[Guest guest]

'Paying people won't change a culture'

 

 

 

He gave up a distinguished teaching career at Stanford School of Business

to

become a full-time student and part-time rock climber. Though he's better

known

as the author of books like Built to Last and Good To Great ? which have

attained

textbook status in the global B-school circuit ? Jim Collins likes to

call

himself a student of enduring great companies and good companies that

become

great.

 

 

Corporate Dossier decided to coach Collins on India ? burning issues,

peculiarities of Indian businesses, deregulation and the impact of politics on

business. We kicked off this affair in February and, over two months, sent him

research papers, articles and white papers on events that have impacted Indian

business and politics. We took him through topics like the hostile global

policing of India's IT industry, problems family-run companies face, the

liberalisation and the branding of India. Collins raised many questions on

issues

like business culture in India, its relationship with the government,

opportunities for rising entrepreneurs, and the state of the stock markets.

 

 

By April, Collins was ready to take the hot seat and apply his research

findings

to the Indian situation. In a marathon three-hour interview, Collins spoke

at

length on the immense opportunity Indian business leaders have to build

great

institutions. Neither did he mince words while commenting on how obsession

with

dynastic rule can prevent companies from achieving greatness. Collins'

statutory

warning: don't import bad American management practices, " no matter how sexy

they

are. "

 

 

After our conversation, and the information that you've received on India,

what

are your first impressions of this country?

 

 

The first thing that jumps out is the degree of uncertainty and

transition

factors that are outside the control of those who are trying to build

large

companies. The process of building a great company does not rely on

special

advantage; as they have to compete on merit in a global environment. That will

be

a challenge and it's a new experience, which will need new skill-sets in

a

rapidly changing competitive global environment. It's a difficult environment.

 

 

A second thing is the opportunity, not just economic opportunity. Let's make

a

historical sweep. In the period from 1500 to 1700, there was a major shift

in

European history. It was a shift driven by religion. It saw the creation of

the

nation state. In the last 100 years, in the US in particular, there's been

a

shift towards the rise of a secondary organising construct of organisations,

that

means to a large extent corporations. They're the building blocks of

how

societies operate.

 

 

Now you have single corporations that have the reach and power of nations.

Such

as Wal-Mart in the US, which has more employees than all of the armed forces

of

the United States. It's revenues will be more than the GDP of many

major

countries like Canada and Spain. The organising framework will be the

nation

state, but the rise of the organisation will be the other building block.

 

 

There's a generation of leaders in a place like India that can see themselves

as

those helping shape the best, but through the vehicle of building corporations.

I

see the next 50 years as a time when many building blocks will be created

and

shaped within Indian society. This presents opportunities for those

companies

that can play the role of a vehicle.

 

 

The Indian IT industry is currently facing a backlash from various countries.

How

do you think can Indian companies cope with this?

 

 

I'd observe that America is no different from any collection of human

beings

anywhere else when reacting to fear. When people feel threatened by things,

they

see things shifting out as a natural inclination of fear. The other question

is

to see the timeframe in which you react to things.

 

 

If you take a purely protectionist view, the long-term result of that is that

it

sets you behind. The steady march of globalisation is not likely to stop,

there's

no evidence that suggests it will stop. You can protect, I suppose, but it's

more

a rear-guard reaction. From the point of view of a company like Dell, India's

an

opportunity, not a threat. You have very well-trained people in the country

who

can provide high-level technical assistance to people who are trying to

make

computers work.

 

 

Political leadership many years ago had a vision and set up the IITs. But

China

seems to be beating India in foreign direct investment. Why do you think

China

has more appeal than India?

 

 

You're starting to build India as a nation and as a brand. You've the ability

in

technology. It's relatively early. There's a second piece to the puzzle.

It's

speculation, but when I interact with companies who are thinking about

China,

what largely appeals to them is the manufacturing costs, which is reliable

and

competitive. That will not go away.

 

 

On the other hand, there are those who offer knowledge-based services. India

has

the ability to provide highly sophisticated technical input, and that's

a

knowledge-based service. It's a huge value-addition in today's

economy.

Manufacturing is a small piece. The challenge Indian companies need to address

is

that while they've got one part of the puzzle, which is the knowledge

services,

the other part of the puzzle is the culture that Indian companies can

bring,

which is special. That would be something very distinguishing.

 

 

When a company loses direction and begins reacting to external forces and

forgets

consistency, that's when mediocrity sets in. I'd be cautious about

discounting

the cumulative momentum of the machinery that you've built so far.

 

 

You've talked extensively about the problem of entitlement. How can

Indian

companies break the habit of entitlement and move towards a

performance-driven

system?

 

 

In our research, I used the term 'culture of discipline'. At the top levels

of

the organisation, executives must meet the test. Can you be the very best in

the

industry? At the top levels of the organisation, you've got to see that you

can

be the best in the industry one day, or you don't deserve the top seat.

We've

seen this in family-run companies, where people believe that just because

you're

a family member you're entitled to a big seat. It should involve the right

people

in the bus and the right people in the top seats.

 

 

The word 'accountability' has a sense of blame in it. What we found in

our

research was that people in great companies don't have jobs but

responsibilities.

Who's the one person responsible? Everybody has to have responsibility,

or

there'll be chaos. You create the basic framework ? who takes responsibility

to

do things?

 

 

Let me dispel a key myth of what America believes is performance pay. There's

no

evidence that the way you pay people fundamentally changes a culture. It

may

change the culture, but it won't create a culture of discipline. The

real

question is not how you pay people, but which people you pay. One of the

things

not to learn from America is incentives, which are basically barbaric.

 

 

In India, there are many family-owned companies trying to be more

professional

and, as a result, hiring top managers by paying a lot of money. Your comments.

 

 

It's an American assumption that you throw money to do the right things.

The

question is: do you have the right managers and are they in the right jobs?

The

only purpose of compensation is to ensure that the right managers never

leave

your company just for money.

 

 

Walgreen, Wal-Mart, Abbot Labs and Walt Disney were all family companies.

The

people who built the companies, the people on top, were those who wanted

the

company to be the best. They were in the top jobs to serve the purpose of

the

company, the company was not in the service of the family. If for the benefit

of

the company, family members have to give up the top job, they must do so.

 

 

We're in a social construct where we have a great deal of fascination

for

dynasties ? this cuts across politics, films and business. Do you think

the

dynasty factor can be crippling in our transition from Good to Great?

 

 

In the short term, it may have been difficult for family companies to

put

professionals up there, but in the long term it became so successful that

it

provided a platform for the company to do different things. And companies

that

put family ahead of the company have disappeared.

 

 

Truly great companies like Wal-Mart, IBM and HP created company families.

It's

not in a cheesy way, but these people created a company culture where there was

a

legacy. There was a whole new definition of family. You talk to people inside

a

great company and they feel they're part of a family that cuts across

all

boundaries. They're part of a strong social system.

 

 

Part of building a company is to create a whole definition of legacy, which

is

the company's culture and its institutional role in society and what it

stands

for.

 

 

Some of the biggest companies in India are well-known abroad. Most

business

houses feel content at being the best in India and the fact that they've

been

around for 100 years. Is that good enough?

 

 

It's not a family or professional issue. Some family members have been

great

company builders ? and there have been terrible professional managers. Truly,

the

key distinction is whether the people in the hot seat are ambitious

for

themselves or for the company. Is it your ambition to make the company great?

The

others are secondary issues. In your environment it may be harder, but in

a

global, open market, doing well relative to Indian companies may not be enough

of

a standard to survive.

 

 

How important is it to have a cohesive vision for a company, and how do

you

communicate it to people?

 

 

There's a big difference between communication efforts and the essence of

what

you're driving towards. First of all, I don't think you have to communicate

your

grandeur vision to the world. There has to be a quiet vision. It's a powerful

way

to do things and let them speak for itself. There's a powerful way to

communicate

what you intend to do.

 

 

The mechanism is more important. The company needs to understand what

you're

passionate about and what you could be the best at. You may not publicly

state

it, but align your resources to make that happen. It's a process of

reflection;

of understanding what the deep strengths of your institution are.

 

 

When Boeing set out to take the world into the jet age, it wasn't randomly

picked

up. They were passionate about it. They understood that they could build

aircraft

because of military experience. They also realised it made commercial sense.

You

need to be clear about the core values of the company you're trying to build.

You

need to separate core values from traditions.

 

 

When you talk of 100-year-old companies, there are a lot of traditions

and

practices. The question is how to retain the core values and change

the

traditions. The key is you have to be clear about what should not change.

Keep

the values and change the traditions. You need to understand the values

you're

passionate about, even if you don't put them down.

 

 

You've talked about companies moving from good to great. How can India as

a

nation work towards becoming great, keeping in mind all the core values?

 

 

That's the subject of my next research. The brand gets built by having a

passion

to be the best. Indians must ask: how can we contribute to the rest of the

world

in a social and economic way better than anyone else? How can we do it in a

way

that is economically viable? How can we put a special signature to it and

do

something Indians are passionate about? In the global market and in the

context

of wins and losses, you accumulate wins and people start talking about it.

The

way things gain momentum is through results, and more results build

credibility.

 

 

I wouldn't discount the success; it's important to build on them. I

wouldn't

dispel the strikes of success, it's a matter of building on them. I'm launching

a

research project where I will talk about building a great society. It will be

in

pairs ? we'll look at two cities, two nations and two educational

institutions,

government agencies, schools and not-for-profit organisations. I'll have to

get

back to you in a few years!

 

 

India's fast emerging as backoffice of the world, and white-collar jobs

are

moving to India. How long will these jobs move out of India? And is this thing

of

relocating jobs to cheaper locations a short-term view of business?

 

 

If you deal with it in terms of costs, it's short-term. But I go back to

some

other companies and their lessons. Everybody said you cannot compete with

global

steel as America is expensive, but Nucor proved that steel doesn't have to

go

offshore. Yes, there will be pressures, but if you create companies that

provide

value, you can survive. In a broad sense, do I worry about America? I

hate

short-term views, but the real question is: it's the responsibility of

corporate

leaders not just to think in terms of quarters, but in terms of a

quarter

century. If you're taking cost decisions in terms of quarters, we have a

problem.

 

 

The key trait of Level 5 leaders is that they have ambitions for the company,

not

for themselves. This seems to be in contrast with the core principle

of

capitalism, which thrives on individual greed. Lester Thurow says capitalism

and

scandals are linked and are inseparable. What is your view?

 

 

I violently disagree and I would draw my point of view from evidence. I do

not

believe evidence suggests capitalism is driven by greed. There's a greed

element

in it. Maybe the capital markets, but not functioning of private

enterprise

systems. The reason why I fundamentally disagree with the assumption is that

the

Level 5 finding is not my point of view. It's not what I believed to be true

when

I started. It's an empirical deduction that came out of a study of companies

that

were selected based on their ability to make a change in intangible results.

 

 

We sought good to great companies based on Wall Street, the ultimate

capitalist

mechanism. We picked companies based on their ability to beat everyone by

the

measure of a capitalist system. We picked them because they won in a

capitalist

system. And then we asked what was different about these companies that

produced

best returns by the economists' definition of success, by the money definition

of

success.

 

 

We found that those who win by the definition of capitalism are people who

are

ambitious for the company and not for themselves. That's the paradox. People

may

believe that greed drives capitalism, but our research shows the opposite.

 

 

Many believe it's not enough to become great, but to sustain the greatness?

 

 

First of all, there's no guarantee that one should become great and stay there.

I

know that we first wrote Built to Last, but that should come second. First you

go

from Good to Great and then you go Built to Last. All great companies

stumble.

The real question is: can you come back from it? IBM did stumble, but

the

difference between IBM and others is that it still had the genetics to come

back

from it.

 

 

The question is not that the company has a great record. Big companies

sometimes

do stumble. There's a very interesting part of the puzzle. Here we come back

to

traditions and values. The values are those that made you great in the

first

place, then you can change the practices, traditions and strategies. But keep

the

core values because they have the underlying DNA. That's what Lou Gerstner

did,

he kept the core values and changed the strategies.

 

 

You've to be productively neurotic. Never think of yourself as great. I had

an

interesting conversation with a key executive of Wal-Mart that struck me.

He

said: " We're the world's greatest corporation with the world's

largest

inferiority complex. We still don't think we're successful. "

 

 

There's another wonderful story of Sam Walton and his wife eating a burger at

a

diner and someone walks over and points to a guy and says: " That's Joe, he

used

to drive trucks and now he has his own business and raises chickens. Joe

is

successful. " Sam Walton said I would like to learn from Joe. Now that's a

great

thing for a man who has a network of $8 billion saying he can learn from Joe.

The

idea is to believe that you can always learn from others.

 

 

The reason why many great companies fall from grace is that they reach the top

of

the mountain and they never set a new goal ? and they languish.

 

 

 

 

 

 

...........................

Regards / Mit freundlichem Gruss

Vinodhini, J

Secretary to EG-Head

Polaris Software Lab Ltd.

Ph : (0) 04114-235001 - Ext. 5370

 

 

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