Business Sutra |1.2 | Purpose of a Corporation

business-sutra-1Business Sutra |1| Corporations

In the opening part of the first episode of his TV serial, Business Sutra, Devdutt Pattanaik dwelt upon the subject of the Indian way of doing the business.

In our present post, we will have a detailed look at the second of the three parts of this episode.

Business Sutra |1.2 | Purpose of a Corporation

500 corporations control about seventy percent of world trade and each year approximately 3 million new limited liability companies are registered. The way these corporations are managed can therefore affect the potential for either positive or negative change, depending on the chosen stewardship. The biggest question we face goes to the very core of business: What is the purpose of these corporations?

However, the subject has ever remained any simple either in tone or in its content. Depending on the context, the related discussions have remained as much exhaustive as hotly debated.

The most discussed and debated view – The Social Responsibility of Business is to Increase its Profits -is attributed to Milton Friedman. The core of of Milton Friedman was: There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.

One of the strongest rejoinder, and by now a fairly widely accepted view, is that of Peter Drucker. In his book The Practice of Management, Peter Drucker declares -“The purpose of a company is to create a customer” and “a business….is defined by the want the customer satisfies when he or she buys a product or a service. To satisfy the customer is the mission and purpose of every business.”

purpose-of-business-peter-drucker

The views expressed by our own Gandhiji also echo a similar sentiment.

purpose-of-business-mahatma-gandhi

Let us look at several other points of views so as to gather a wider perspective of the discussion:

In The meaning of Bill Gates has been discussed Bill Gates interpretation of the direction that Microsoft should take up on the basis of what was his understanding the then purpose of the organization.  As with many great innovations, Bill Gates’s vision has come to seem so obvious that it is hard to imagine the world any other way. Yet, early on, he grasped two things that were far from obvious at the time, and he grasped them more clearly and pursued them more fiercely than his rivals did at Commodore, MITS or even Apple.

The first was that computing could be a high-volume, low-margin business. Until Microsoft came along, the big money was in maintaining a select family of very grand mainframes. Gates realised that falling hardware costs, combined with the negligible expense of making extra copies of standard software, would turn the computer business on its head. Personal computers could be “on every desk and in every home”. Profit would come from selling a lot of them cheaply, not servicing a few at a great price. And the company that won a large market share at the start would prevail later on.

Gates also realized that making hardware and writing software could be stronger as separate businesses. Even as firms like Apple clung on to both the computer operating system and the hardware—just as mainframe companies had—Microsoft and Intel, which designed the PC’s microprocessors, blew computing’s business model apart. Hardware and software companies innovated in an ecosystem that the Wintel duopoly tightly controlled and—in spite of the bugs and crashes—used to reap vast economies of scale and profits. When mighty IBM unwittingly granted Microsoft the right to sell its PC operating system to other hardware firms, it did not see that it was creating legions of rivals for itself. Bill Gates did.

Noel Tichy and Ram Charan have unraveled Jack Welsh’s the then interpretation of GE’s purpose and the consequent direction GE ought to chart in Speed, Simplicity, Self-confidence: an interview with Jack Welsh: In 1981, Welch declared that the company would focus its operations on three “strategic circles”—core manufacturing units such as lighting and locomotives, technology-intensive businesses, and services—and that each of its businesses would rank first or second in its global market.

GE’s strategic redirection had essentially taken shape by the end of 1986. By then, Welch has embarked on a more imposing challenge: building a revitalized “human engine” to animate GE’s formidable “business engine.”

His program had two central objectives. First, he championed a company-wide drive to identify and eliminate unproductive work in order to energize GE’s employees. Second, and perhaps of even greater significance, Welch lead a transformation of attitudes at GE—struggling, in his words, to release “emotional energy” at all levels of the organization and encourage creativity and feelings of ownership and self-worth. His ultimate goal was to create an enterprise that can tap the benefits of global scale and diversity without the stifling costs of bureaucratic controls and hierarchical authority and without a managerial focus on personal power and self-perpetuation. This requires a transformation not only of systems and procedures, but also of people themselves.

In an HBR article, Ben W Heineman, Jr. presents Steve Jobs and the Purpose of the Corporation : His deep commitment was to make innovative, robust and beautiful products that delighted customers. There can also be no question that Jobs was not focused on shareholders or taking short-cuts or short-term actions to maximize shareholder value.

In a TED Talk, Profit is not always the point, Harish Manwani while presenting the Unilever Sustainable Living Plan, which said, “Our purpose is to make sustainable living commonplace, and we are going to change the lives of one billion people over 2020”, traces his own career of how this was and is being done.

In a paper published in 2011 – The Purpose of the Corporation in Business and Law School Curricula – Darrell West examines law and business school curricula to determine which perspectives are taught in professional education, and student perceptions about business schools based on surveys at leading business programs over the past decade. The paper concludes that having broader conceptions of corporate purpose is necessary to effectively address the ways in which corporations impact life in contemporary society.

Firms of Endearment: How World-Class Companies Profit from Passion and Purpose: Rajendra S. Sisodia, David B. Wolfe, Jagdish N. Sheth, Pearson Education, February 2014, Second Edition : Today’s greatest companies are fueled by passion and purpose, not cash. They earn large profits by helping all their stakeholders thrive: customers, investors, employees, partners, communities, and society. These rare, authentic firms of endearment act in powerfully positive ways that stakeholders recognize, value, admire, and even love. They make the world better by the way they do business-and the world responds. They had created radically new rules:

  • Build a high-performance business on love (It can be done. We’ll prove it.)
  • Help people find the self-actualization they’re so desperately seeking
  • Join capitalism’s radical social transformation—or fall by the wayside
  • Don’t just talk about creating a happy, productive workplace: DO IT!
  • Honor the unspoken emotional contract you share with your stakeholders
  • Create partner relationships that really are mutually beneficial
  • Build a company that communities welcome enthusiastically
  • Help all your stakeholders win, including your investors

Chris MacDonald proposes that it really is foolish to think that the purpose of a corporation is to make money. But that’s only because it’s foolish to think that corporations have purposes at all. That is, it’s foolish to think of a large, multifaceted organization as having a single, unitary “purpose” in the universe, rather than thinking of it as serving many purposes for many interested parties. Arguing over what a corporation is “really for” — building shareholder value? making products to make people happy? Providing jobs? etc. — is a fool’s errand. He poses a question: How you should behave yourself in the course of your job, in pursuit of your goals? This is a question of ethics. And that question is much more enlightening than some grand question about purposes.

The Purpose of the Corporation project has released a video animation to review the purpose of the corporation and the myths of the shareholder value maximisation model. A backgrounder is also available online offering further information and data studies.

The Project launched a global roundtable series on corporate governance that brought together experts from business, academia, regulators and civil society to discuss the future of big business. Events were held in London (September 2015), New York (June 2015), Zurich (October 2015) and Breukelen (The Netherlands – February 2016). Paris (April 2016), Oslo (August 2016). The results of the global roundtable series were presented at a high-level conference in September 2016.

The report is available here: http://www.purposeofcorporation.org/corporate-governance-for-a-changing-world_report.pdf

In his talk, Start With Why, Simon Sinek, consultant and author, explain the emergency for companies and organizations to wonder “why”: why, fundamentally, did they build up themselves, why do they exist and which are the values in which they believe? Each company owns a combination of three strategic components: why they exist (“Why”), how they to business (“How”) and what are its products and services (“What”). The specificity of this mix, if the company succeeds in expressing it, becomes its strength. Companies that understood this approach of leadership are more innovative and more long-lasting than the others.

How to Identify Your Team or Organization’s Purpose – Jesse Lyn Stoner seeks replies to these three questions

  1. What business are you really in? Who are your customers and what do they really need from you? Knowing “what business you’re really in” informs strategic decisions.
  2. What is the real value you offer? How do people benefit from what you offer? How does your service or product benefit society at large?  A significant and valuable purpose inspires commitment and provides meaning to daily activities.
  3. What is the end-result that you offer? Focusing on the end-result you create is engaging and energizing.

The Power of Purpose for Innovation and Transformation – Cheryl J Grise and Vallerie Keller – Successful companies embed purpose at the heart of their strategy. But how do you identify and articulate a company’s purpose? And, having done so, how do you translate it into successful innovation and strategic transformation? This article provides important insight into purpose-led transformation and how it can help build a better working world.

Thus far, we have had representative samples of what the West has to say on the subject of the purpose of the corporation.

Let us now look at what Devdutt Pattanaik has to say in Segment 2: Purpose of a Corporation.

The purpose of the organization can be represented in the form of concept of happiness or LSD.

Here are the key points from his present discourse:

In India the belief is also wealth and not the only wealth. The core question that most of us are faced with in our daily existence is that what is the purpose of a corporation? What is the motivation that should ideally drive a corporation?

Typically it should not be profitability because profitability is also equal to a certain efficient way of running a certain distribution of wealth. The profits can only come if you produce goods and products that consumers wanted, in the best most efficient manner.  Is the profitability the generosity, is it ambition, is it agreed.

lsdThe motivation of corporation is to create happiness. In India currency is of three types and it was represented using the three goddesses – one goddess who is sort of famous for sitting on a lotus everywhere in India, holding an pot overflowing with wealth. Another goddess is famous because she holds a veena in one hand and scriptures in the other hand.  She is he goddess of knowledge. There is a third goddess. She has a trident in her hand.  The first one is called Lakshmi[L], second one is Saraswati [S] and the third one is Durga[D].

One represents material wealth, the second represents the intellectual wealth and the third one is emotional wealth. These are the three things that human beings transact each other.  This also represents material needs, intellectual needs and the emotional needs of a human being. The organizations have to work at all three levels,

The question is of striking a balance somewhere along the line.

If you closely look at the balanced scored, it is about LSD.

“The number of people who are really motivated by money is very small,” Drucker once remarked. “Most people need to feel that they are here for a purpose, and unless an organization can connect to this need to leave something behind that makes this a better world, or at least a different one, it won’t be successful over time.”

Follow Drucker’s lead and change work from being transactional to transformative. Productivity will go up, and so will joy at work. We may call that positive business.

We will take up discussion of Short-term or long-term thinking (professionalism or family business), as presented in the Segment 3 of the first episode of Devdutt Pattanaik’s TV serial Business Sutra in our next episode.

Devdutt Pattanaik’s Business Sutra |1.1 | Is there an Indian way of doing Business

business-sutra-1Business Sutra |1| Corporations

Devdutt Pattanaik opens the discussion in his TV serial Business Sutra by taking up the subject of:

What is the purpose of a corporation? Why does it exist? And is there a difference between corporations in India and those in the West? Wherefrom come these differences?

He goes on to explore the ideas of Happiness as well Strategic versus Tactical thinking. All this discussion leads one to wonder if professionalism is a good thing.

Typically, Devdutt Pattanaik gives no prescription.  He has provided the frameworks; the leader has to take the call.

In our present post, we will have a detailed look at the first of the three parts of this episode.

Business Sutra |1.1 | Is there an Indian way of doing Business

Apparently, since the core of any business activities remains more or less same, the way of doing business must also be the same anywhere. However, as is said in a 2010 HBR article – The India Way of Leading Business – these similarities are “different’ as well. In the same article, K V Kamath is quoted – “Time and again it has been proved that the Western model of doing business would not be a success here.” We “think in English and act in Indian,” is how R. Gopalakrishnan, the executive director of Tata Sons, puts it. “For the Indian manager,” he explained, “his intellectual tradition, his y-axis, is Anglo-American, and his action vector, his x-axis, is in the Indian ethos.”

The authors of this HBR article – Peter Cappelli, Harbir Singh, Jitendra Singh, and Michael Useem – in their book – The India Way: How India’s Top Business Leaders Are Revolutionizing Management – what Indian managers do differently, including: looking beyond stockholders’ interests to public mission and national purpose, drawing on improvisation, adaptation, and resilience to overcome endless hurdles, identifying products and services of compelling value to customers, investing in talent and building a stirring culture. Here are the interviews with Michael Useem and Peter Cappeli on this subject.

In an article – The Indian way of management –  published in Business Today in 2010, Sumant Sinha  notes that it’s a mix of organizational capabilities, management practices, and company culture that sets Indian enterprises apart from firms in other countries.

In an event at the American Enterprise Institute in 2014, Bill Gates speaks on what India does right

Here is one more video clip of Vodafone’s CEO Marten Pieters in a refreshingly honest conversation with ET NOW’s Sonali Krishna about the telecom industry, the plan ahead for Vodafone and why Vodafone doesn’t want to be the number one player in the country just yet, in the context of Indian business model.

This would be true for a business operating in any other country, may be some factor more dominant at one time and the other factor playing up in somewhat differently at other time.

Devdutt Pattanaik traces the roots of these differences in the (known or unknown) influence of the Indian mythology on the Indian psyche in Segment 1: On the Indian versus Western Context.

Here are the key points from his present discourse:

It was East India Company that brought to India the concept of a modern corporation a charter company issuing stock paying dividends and multinational in presence

Indians and Chinese have learned a lot from the West but they don’t have to copy. They cannot create a Chinese or Indian version for Western model.

To understand this, we need to visit the story of Alexander, The Great, when he met a naked ascetic at the bank of Indus. Though the ascetic was apparently doing nothing he did seem to be wise in every respect. Alexander asked the gymnosophist what he was doing nothing sitting over there staring at the Stars. The gymnosophist replied that I am experiencing things. He then asked Alexander as to what he was doing. Alexander said that he was conquering the world. Both laughed at each other. Alexander laughed because he thought the gymnosophist was a fool for doing nothing. The gymnosophist laughed because he thought it’s waste of life to do anything.

If we understand these differences in each other’s point of view, then we can understand the difference between the Indian mindset and the Western mindset

The Indian Way of doing business was not about doing business but using the act of doing business to figure out why you are doing what you’re doing. In the answer to that question there is growth, intellectual growth and emotional growth.

One really needs to understand the purpose of business.

It was this very point that in a 1994 Harvard Business Review article, Peter Drucker argued, “the root cause of nearly every [business] crises is not that things are being done poorly. It is not even that the wrong things are being done. Indeed, in most cases, the right things are being done—but fruitlessly.”

We will take up discussion of Purpose of Business, as presented in the Segment 2 of the first episode of Devdutt Paatanaik’s TV serial Business Sutra  in our next episode.

Is Management Profession is still a practice of science or art?

Recently, I saw the title of David H Freeman’s article – Is Management Still a Science? – published in November- December 1992 issue of HBR. That set bells ringing for me. Well, wasn’t practice of management already established as science in the second half of twentieth century? However, if there still was a question, why?

Let us first briefly look at what the article has to state:

“As every manager knows, new technologies are transforming products, markets, business processes, and entire industries, revolutionizing the business environment. Yet the more technology looms as a factor of competition, the more the emphasis is on the “soft” arts of leadership, change management, and employee motivation.

“On reflection, this paradox isn’t so surprising. The traditional scientific approach to management promised to provide managers with the capacity to analyze, predict, and control the behavior of the complex organizations they led. But the world most managers currently inhabit often appears to be unpredictable, uncertain, and even uncontrollable.

“In the face of this more dynamic and volatile business world, the traditional mechanisms of “scientific management” seem not only less useful but positively counterproductive. And science itself appears less and less relevant to the practical concerns of managers.

“However, the problem may lie less in the shortcomings of a scientific approach to management than in managers’ understanding of science.

“Put simply, while traditional science focused on analysis, prediction, and control, the new science emphasizes chaos and complexity.

“The new rules of complex behavior that cutting-edge scientific research describes have intriguing parallels with the organizational behaviors many companies are trying to encourage. Science, long esteemed by business as a source of technological innovation, may ultimately prove of greatest value to managers as a source for something else: useful new ways of looking at the world.

“The wide-ranging texts reviewed here suggest the broad outlines of what might become the new scientific management. Their message: management may indeed be a science—but not the science that most managers think.

The article, at this stage has delved deep into the four monumental books, which also underline four major trends in the development of management science during the 20th century.

These are:

The Principles of Scientific Management, Frederick Winslow Taylor (New York: Harper, 1911).

Chaos: Making a New Science, James Gleick (New York: Viking, 1987).

Complexity: Life at the Edge of Chaos, M. Mitchell Waldrop (New York: Simon & Schuster, 1992).

The Fifth Discipline: The Art and Practice of the Learning Organization, Peter M. Senge (New York: Doubleday, 1990)

The article goes on conclude that, “The scientific managers of today must be researchers who study their own organizations. And they must be designers who create the learning processes that make self-organization possible, the processes that are essential to effective performance in a world characterized by perpetual novelty and change.”

That now leads to another article – Is Management Really an Art? by Henry M. Boettinger, in HBR issue of January 1975. The author investigates what he sees as three indispensable aspects of the artistic process—craft, vision, and communication.

The article sums up with these words:

At every level of management, from shop floor to board room, across the spectrum of our institutions, whether government, business, education, armed forces, or the church, we need a rediscovery of the value of the individual imagination and a rekindling of that passion for humane purposes which is the authentic light of leadership. To manage is to lead, and to lead others requires that one enlist the emotions of others to share a vision as their own. If that is not an art, then nothing is.

Dean Stanely F. Teele, the 4th dean of HBS is more categorical in stating that “Management is a mixture of art and science …. The present ratio is about 90% art and 10% science. Though a very great deal of developments are presently increasing that proportion which can properly be called science. I am willing to venture a guess that by the end of another generation the ratio will be 80% art and perhaps 20% science.”

Peter Drucker in his landmark book The Practice of Management notes that “…managing a business must be creative rather than adaptive task. The more a management creates economic conditions or changes them rather than passively adapts to them, the more it manages the business.’  He goes on observe that “the manager is the dynamic, life-giving element in every business.’ Even as he concludes that, “Management can never be an exact science”, he does assert that the work of a manager can be systematically analyzed and classified.

Both these views relate to the mid-twentieth century thinking on the subject.

In the present times, Devdutt Pattanaik looks the whole concept from an Indian mythological point of view. Why we do business impacts how we do it and what ultimately gets done. It is very different from Management Science, taught in business schools around the world, which does not factor in belief, because belief is subjective truth, hence cannot be measured.

Despite the veneer of objectivity, Management Science is rooted in Western belief. Just as ancient Greeks celebrated Elysium, much-cherished heaven of heroes, and the Bible speaks of the Promised Land, ultimate destination of faithful, Management Science is goal-oriented, obsessed with vision, mission, objectives, milestones, and targets.

By contrast, the Indian way of doing business—as apparent in Indian mythology, but no longer seen in practice— accommodates subjectivity and diversity, and offers an inclusive, more empathetic way of achieving success[i]. The Indian approach is not goal-based; it is gaze-based. It does not exclude the Western model; it includes it, with the assertion that the purpose of an organization is to work towards happiness. Great value is placed on the practice of darshan (gaze): how we see the world and our relationship with Lakshmi, goddess of wealth

So Devdutt Pattanaik has developed a 3 B model, which he calls as the Business Sutra, which basically says, as is your belief, so is your behavior, so is your business. This is Business Sutra, a very Indian way of doing business.

3-b-model

To explore the concept in greater details, every first Sunday of the month, starting from February, 2017, we will revisit, Devdutt Pattanaik’s TV serial, Business Sutra, telecast on CNBC in 2010.

[i]  The Indian approach to business: Devdutt Pattanaik at TEDxGateway 2013