Well-known CEO coach Ram Charan speaks about entrepreneurship in India, and how both nationally and globally, the time is ripe for doing business in India. This is an excerpt of an interview by Charles Assisi, that appeared in LiveMint.
Doing business in India – What to expect
Q: Recently a newspaper editor made an astute observation. His point was, in the media business people have good instincts. But institutional frameworks are not in place. Is this an observation you can extrapolate across other Indian businesses? And as a corollary, are decisions made by Indian FMBs instinct-driven as opposed to the data-driven decisions of their Western counterparts?
Ram Charan: I would like to turn the question to what is useful to the reader going forward. As you look at the next five years, what is more useful for decision-making in the executive suite in India? I am very optimistic about the Narendra Modi government. I am beginning to see decisions moving. I see he has a broader vision. When it comes to the executive suite and making decisions, there are four things leaders need to practice. No matter whether you are in India, Thailand or China, these four things are imperative.
The first is, they have to be in tune with changes on the outside. If the speed of change is higher and you are unwilling to change, it will hurt. If you’re willing to keep pace, you will succeed. But when it comes to predicting what happens in the future, not much data exists. You have to be perceptually very good. You need to be in the external circuit to know what is happening. You have to read a lot about what is causing the change. There are some factual data like demographics. But the most important part for any company to succeed is to be externally oriented.
Item number two is they have to set realistic goals. And if you are an Indian company in a large, free India, you have to be prepared for external factors like government policy that could be unstable. What would you do in an unstable regime? There are no facts on this. There was no way for us to know the Supreme Court would annul coal licences. You have to have a balance sheet that can withstand such a shock. We did not have the facts that Prime Minister Modi would be elected, that he would move fast to Japan and come back with a high possibility of $35 billion investments into India. So you have to be on the move, on the attack to know what is happening. You can’t wait for a lot of facts or data on these things.
Number three, you have to have the right people in the right jobs. This rule is 10,000 years old. But it is violated quite a bit. Giving the right people the right job requires some data. But it also requires a lot of judgment, a lot of instinct.
And number four, how do you allocate resources? For this you need a lot of data and a lot of analysis. When you launch a product, you need data. You need research to look forward. So you must see what is the task, what parts require data and what parts you cannot get data for.
Q: There seems to be a perception in India that if you have succeeded beyond a certain boundary, then you have perhaps bent some rules. And everybody looks at you with a degree of suspicion.
Ram Charan: No. I don’t think so. Sunil Mittal is a world-class entrepreneur. His company has succeeded in India, Bangladesh, Sri Lanka and 23 countries in the African continent. He is a role model. Entrepreneurs do not complain about the environment.
Let me give one more example. Kumar Mangalam Birla inherited the company when he was young. But he took it from $3 billion to $45 billion and went global. Look how well he has done. Or Kishore Biyani for that matter. We have entrepreneurs like him who are persistent and wired to win.
Q: Are there to your mind common sets of lessons an entity ought to keep in mind when scaling up after their start-up years, particularly in the Indian context?
Ram Charan: Once again, it is difficult to generalize. There are nuances. Scaling up needs to be thought through from industry to industry and country to country. But that said, a few commonalities come to mind. First, the CEO of an organization must learn to scale. If they cannot scale their personal outlook and capabilities, they are likely to stumble.
Second, internal systems must scale up. Most people scale up just one system. But they fail to see the whole picture of which systems need to be scaled up, particularly information technology (IT), the organizational structure and decision-making mechanisms.
And third, in the scaling-up process, attention must be paid to allocation of financial resources. In many cases, this is not done well. If you are a company that needs a lot of capital to scale up, you need to do the financing, talk to funders and figure out the sequence in which you scale up.
Q: You spoke of Sunil Mittal, Kumar Mangalam Birla and Kishore Biyani. Looking forward, which Indian businesses or which sectors do you think have the most potential and who would you be willing to bet on?
Ram Charan: We have very positive momentum in India. You have Japan coming in with $35 billion. The Chinese are coming in with $20 billion. I have no doubt the Americans will be coming here. The Koreans will be coming. Foreign direct investment has to increase. We already have our software outsourcing business really growing. Almost 70-80% of their business is not from India. We are highly regarded. And we are profitable. So this is a new era for India, and the opportunity is there for anybody who can put a deliberate strategy in place and execute it. Look at each sector. It can be just about any sector.
Q: The point you made about executing well, what does it take to do it well?
Ram Charan: It is a basic discipline. You go from 50,000 feet to 50 feet. You focus on details. You assign people accountability and follow through.
Q: Do you see a lot of people with that kind of discipline?
Ram Charan: There are very good companies doing it in India. TCS, Wipro, Cognizant, they do it very well. These are the jewels of India. They are globally very good. Infosys does well, but it has some problems now. Outside the IT business, Bharti Airtel has done very well. Birla’s Idea has done well. Hindalco is excellent in execution. Jaguar has excellent execution by the Tatas.
Q: Is there something specific to their DNA that makes them special?
Ram Charan: No, I think it is the simple things that I spoke of earlier. There is no rocket science here. Just like athletes practice, you practice. Just like football teams do, you execute.
Q: How do you think the Indian experience has panned out compared with China or emerging economies in other parts of the world?
Ram Charan: I don’t make such comparisons. China is not one place. The people in Sichuan are very different from the people in Beijing. It’s the same thing here. These comparisons are for academics, not business people. Don’t make these comparisons. It loses the practical focus.
Q: What will it take to foster scientific entrepreneurship in much the same way that the IT services and software space has taken of?
Ram Charan: The whole thing got big with the private sector. If the private sector moves into the defence industry, you will get scientists. If they move into pharmaceuticals, people will come. If the private sector becomes big, you will have entrepreneurs coming in.
Q: The average Indian scientist takes home $1,000 per month compared with the West where they take home multiples of that. Would you agree these disparities have a negative impact on science-driven entrepreneurship in the country?
Ram Charan: Don’t go there. As private businesses grow, it will attract appropriate talent and provide appropriate rewards.
FMBs and Entrepreneurship in India
Q: Many of the participants at the program you facilitate at the Isha Foundation come from family- managed businesses (FMBs). In your consulting experience, what kind of pain do these entities go through as they transition into professionally managed outfits?
Ram Charan: In the first instance, no two families are the same. The founders need to come to terms with whether they want to, and if they do, how to pass ownership to the next generation. They need to plan that while they are alive. There are several ways to think about it. One model is to train their children in professional schools and have them come back to run their business. The second model is to have professionals run it. The children might need to be on the board. But to be there, they need an investors’ orientation. Then they can spend their time looking at the future of the business, managing its course, get actively involved in the board, selection of its members, and development of the executive team.
The key here is that the existing patriarch must come to terms with what is the real talent each of his children possesses. And how is that talent relevant for the future. He has to get that feedback and find the right fit. For those who do this, the company will perpetuate. For those who don’t, it will decline.
Q: When it comes to professionals who want to plunge into entrepreneurship, do you see any difference in the way they conduct business as opposed to second- and third-generation entrepreneurs who have been groomed by their patriarchs?
Ram Charan: I think there are no general rules. It is up to the individual. If a family wants to give charge to an individual, you have to allow the person to take the plunge and test it out. Some of them may succeed and some may not. So you allow people to take chances. There have been many, many cases in the world where someone did not succeed until they finally did. The founder of McDonald’s did not succeed until he was 48 years old. He tried many times. You have to allow people to test their abilities. Today, you can be an entrepreneur with very limited resources. You have lots of examples in India I am sure.
Q: Another observation on Indian small and medium businesses and FMBs. They come across as insular and view partnerships suspiciously. What has your experience been when you have interacted with this community?
Ram Charan: This is a sweeping generalization and it doesn’t help anybody. I would go case by case and suggest what to do. India has some very fine traditions of courageous entrepreneurs.
Sure, but let’s take the e-commerce space as a case in point. It seems like the kind of business where it is possible to make a general statement. It seems every retailer’s business model in this space is built on the back of price discounting. Let me take you through some very important and simple items. Anything that is digitized and that is using analytics, the initial cost is high. Its replication cost is close to zero. And so, those who are able to scale up very fast can capture the customer very fast. They have the advantage of setting a lower price because the replication cost is close to zero. That is how this business works.
Q: What is it about Sadhguru that gets your attention?
Ram Charan: You know his background. He is not only spiritual, he is practical and down to earth. He can talk on the same wavelength as business people. And his motive is very clear. It is to help, to do something useful and practical for the country, and young people. That is important to business people and connects very well with them.