Thinkers - Redefining Capitalism by Institute for Competitiveness

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www.thinkers.in

Competitiveness Social enterprise Innovation Technology Shared value ...and areas that are

Redefining Capitalism Vol 1. Issue 2. April-June 2015

ISSN 2321-9297

Redefining Capitalism Vol 1. Issue 2. April-June 2015

Thinkers Magazine is now available in the following versions: Print: Get access to the print copy which will be delivered to your place. (Available only in India) Digital: Available on Magzter and Issuu

Editor-in-Chief Amit Kapoor

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Consulting Editor KEVIN STOLARICK

Annual subscription Price: $45 | `1500

Publisher Institute for Competitiveness

Editor malvika chandan

Editorial Board In alphabetical order Anurag Batra Chairman Business World Joan Bigham Managing Director Global Solution Networks Executive Vice President Tapscott Group Manoj Kumar Managing Partner Hammurabi & Solomon NEERA VOHRA Program Coordinator Institute for Competitiveness

Thinkers, is a presentation of Thinkers50 India, which is about discussing new ideas, new thoughts, addressing challenging issues, forging new paths, in the process creating an ever widening circle of thought leadership and synergy in the same by integrating online and offline experiences. Thinkers50 India is a joint initiative of Institute for Competitiveness, India and Thinkers50. Institute for Competitiveness, India is an international initiative centred in India, dedicated to enlarging and purposeful disseminating the body of research and knowledge on competition and strategy. Institute for Competitiveness, India conducts and supports indigenous research, offers academic and executive courses, and provides advisory services to the Corporate and the Governments. The institute studies competition and its implications for company strategy; the competitiveness of nations, regions & cities and thus generates guidelines for businesses and those in governance; and suggests and provides solutions for socio-economic problems. Created in 2001 by Stuart Crainer and Des Dearlove, the Thinkers50 was the first-ever global ranking of management thinkers. In the intervening decade, the scope of Thinkers50 has broadened to include a range of activities that support its mission of identifying, ranking and sharing the best management thinking in the world. Today, Thinkers50 is widely recognized as the worldâ&#x20AC;&#x2122;s definitive ranking of the top 50 business thinkers, and the T50 Distinguished Achievement Awards are widely regarded as the â&#x20AC;&#x153;Oscars of management thinking.â&#x20AC;?

Editor’s note

In conversation with Jordan Kassalow

In an interaction with Jordan Kassalow, founder and co-chairman of VisionSpring, he talks about the simple but transformative work his organization has undertaken of providing low cost glasses to the visually impaired and how that has enormously improved their lives and ability to make a livelihood.

Capitalism 2.0 By Don Tapscott

Written at the height of the global economic crisis, the author makes a compelling argument for a new order of social capitalism, even while the old guard may resist and tenaciously cling on to the old model.

Capitalism—Is there an Indian way? By Sameer Nagpal

In conversation with Christian Ketels

In an interaction with Christian Ketels, member of the Harvard Business School faculty at Professor Michael E. Porter’s Institute for Strategy and Competitiveness, he shares his views on the future of capitalism and some key ingredients needed for its evolution both in the developing and developed world.

Thinker in Bokaro Jail By Chetan Mahajan

No matter how terrible the experience, one can derive lessons and apply them positively to life. In this piece, the author, supported with excerpts from his book The Bad Boys of Bokaro Jail, reflects on his harrowing month in jail and how it tested to the T this philosophy he has endeavoured to live by.

Sanjiv Mehta

CEO and Managing Director, Hindustan Unilever Limited at the Porter Prize ceremony on the role of corporates in social progress and nation building.

Capitalism has created enormous value for mankind and improved our quality of life. Now we need a better version of the system.

By Sangeet Paul Choudary

In conversation with Mike Walsh

Platform Disruption Startups are leveraging large ecosystems to disrupt longstanding incumbents. They have been able to do so, systemically, by morphing from the pipe model to the platform model.

In an interaction with Mike Walsh, CEO of Tomorrow, a global consultancy on designing business for the 21st century, he shares his view on the how the rapidly digitizing world will fundamentally enhance how educational institutes and corporates, large and small, deliver.

In an interaction with Raghavendra Rau, Sir Evelyn de Rothschild Professor of Finance at the Cambridge Judge Business School and a past president of the European Finance Association, he speaks about the development of non banking finance in the developed world and about his research interest in individuals’ risk taking ability.

My professional journey and where we head next By Sunand Sharma

The author uses his professional experience from the 70’s to the present century as a lens to reflect on the impact of globalization on India.

In conversation with Raghavendra Rau

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By Paul Barnett

by Aisha Chaudhary

Business as a Force for Good is Just Good Book extract My Little Epiphanies Business In citing the Barclay’s example, Paul Barnett brings to life the belief that a strong value system is the only means to a long-term sustainable business model.

Aisha Choudhary’s book leaves you with a tear in your eye and a smile on your lips. This book of epiphanies reveals an indomitable spirit in the face of losing our most precious gift, life.

Managing Director, Nestlé India Limited

Bishop William Lawrence University Professor at The Institute for Strategy and Competitiveness, based at the Harvard Business School

Etienne Benet

at the Porter Prize ceremony on initiatives companies can take towards creating shared value.

In conversation with Stuart l. Hart

In an interaction with Stuart L. Hart, global thinker and Founder and President of Enterprise for a Sustainable World, a non-profit organisation dedicated to helping businesses make the transition to sustainability, he talks about how Indian micro finance institutions can work towards cleaning their negative image.

Learning beyond perspectives: Towards a multi dynamic sense of competence

Michael E. Porter

at the eponymous Porter Prize ceremony on competitiveness, shared value, and social progress.

Be a ‘giver’ in business, instead of a ‘taker’

By Joyshree Reinelt, Subodh Deshpande, Sonia Kapoor Businesses and brands that will be recognized, loved, and chosen in the long term are the ones that create genuine value for all stakeholders.

Asian Drama: Samurai, Tigers and Giants By Sankalp Sharma

This article highlights the constraints within popular notions on learning and industry and their manifestation, and offers a solution that encompasses multiple intelligences.

The author embarks on a close evaluation of the economic performance of Asian countries over the years. In particular, the article looks at the big three economies of Asia (namely China Japan and India) and the Asian Tigers (namely South Korea, Taiwan, Hong Kong and Singapore).

By Rizio Yohannan Raj

The Soul of Competitiveness

ReThinking

By Mark Goyder

By Kevin Stolarick

The effectiveness of macro areas like law, health, policy and governance are at the heart of competitiveness as also are corporate leadership and ownership, wherein too government plays a role in its enhancement or determent.

Note from Editor-in-chief

Editor’s note

If there’s one idea that stands out in this issue, it is that capitalism needs to be thought about and enacted with a higher level of consciousness. It is no longer just a mechanism to increase personal and shareholder wealth but a responsibility to push through new frontiers of technology and innovation, improving the quality of not just goods and services provided but lives of people in communities everywhere by focusing equally on areas like education, healthcare and the environment. From Michael Porter’s incisive speech on competitiveness, shared value, and social progress to Jordan Kassalow’s inspirational interview where he talks of his vision of providing low cost glasses to people who otherwise would not be able to afford them, to Don Tapscott’s article, Capitalism 2.0, written at the height of the global economic crisis, putting forward a strong case for the reinvention of capitalism, the message rings loud and clear that a new approach to capitalism is needed. We hope this issue leaves you with plenty of food-for-thought and look forward to your feedback. Regards, Malvika

In Conversation with Jordan Kassalow By Amit Kapoor In an interaction with Jordan Kassalow, founder and co-chairman of VisionSpring, he talks about the simple but transformative work his organization has undertaken of providing low cost glasses to the visually impaired and how that has enormously improved their lives and ability to make a livelihood.

Could you give me examples of how social impact has actually been created? There is very powerful link between vision and economic development and economic development is a major problem in the world. We are trying to find ways to bring more and more people in the mainstream of the world economy. Also, income disparities are a major problem and vision feeds that income disparity in several ways. The number of kids throughout the world fall out of school not because of any incapacity to learn but just because of they can’t see the blackboard. So that’s one impact that we are having. We are enabling them to see to learn. The second is the link between vision and productivity. We have done some studies that show that once the person gets glasses his productivity increases by 35% and income by 20% and the third link between vision and economic development is safety. Road traffic fatalities are rampant in the developing world. 59% of road traffic fatalities have a visual component associated with them. So we are working to make sure that people who are driving have access to affordable glasses and hence personal security and safety. As of today how many lives have you touched in the world? Directly we are closing in on 2 million customers. But, we also affect not only the customers but also people in their families. Therefore, we affect 5 times the people we have sold glasses to because the average family size is 5 in the market we work. Have you calculated the impact you have created in terms of economic value? Yes, we did a study with University of Michigan and found that the productivity of a person increases

“There are 4 billion people on the planet who earn less than $4 a day and the whole optical market is geared to the 3 billion people who earn more than that.” by 35% once he gets our glasses. Take an average customer who makes $2 a day. That’s $108 of economic value per pair of glasses per year assuming our glasses last for an average of 2 years. So, each pair of glasses that we sell for $2 or $3, earns a $216 return on investment. It creates a huge impact economically. We sell 2 million pairs of glasses and multiplying that with $216; so as an organization we are increasing economic impact by at least half a billion dollars over the last 10 years. How did you come to this idea and realize that this is one of the problems that you would like to solve? As a student I became involved with eye care services. But the transformative moment was when my very first patient was a 7-year-old boy from the blind school. While examining his eyes I realized that he was not blind but nearsighted. We provided him with a pair of prescriptive glasses. When the lenses aligned with his eyes the blank stare of a blank child formed into an incredible smile of joy. For me I had given him his vision, but he gave me my purpose that day and that very moment I have been on this quest. He had no hope or purpose in his life. That one pair of glasses literary transformed the boy’s life. Can you tell me more about the hurdles that you faced and what biggest challenge that you faced while creating VisionSpring? The first challenge that we faced was building the business model to solve this problem. The problem that we recognize is that 700 million people in the world needed a pair of affordable glasses. What I also observed when I was working with communities all over the world was that huge amount of people who were under employed or not employed needed economic opportunity, so, I thought that why can’t we train local men and women, particularly women, to sell simple glasses to the neighbor creating livelihood for the women and sustaining the livelihood of the trained craftsperson. So that was our first model called the ‘1.0 model’ and created a manned force

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Could you tell me how the VisionSpring idea has made an impact? It came about from personal experience as a doctor of optometry and working in over 40 countries. There are all types of vision problems from cataract to lack of spectacles and I observed that for every person, who had a medical problem of the eyes, there were 10 people who just needed specs. People who are earning their living with eyes and hands like tailors, artisans were falling out, not because of some terrible disease but because they could not see up close. I thought that was a ridiculous state of affairs and I am trying to change it by providing a pair of glasses for less than a dollar.

8 called the ‘Vision Entrepreneur’. We were creating jobs, sustaining jobs through such a simple health product and giving value to people. We worked on that model for 5 years. But the bad news was no matter how hard we tried we could not get that model to yield enough money for operating expenses. So, that was the first big hurdle. We got a lot of funding, recognition because of this innovative model, but at the end of the day it did not work as a business. So, we started to iterate. How did you really resolve this problem to find that sweet spot that you are now in? The journey of iterations was an interesting one but did not work multifold. Firstly, there wasn’t a market for our glasses so, a latent demand; yes – meaning physiologically people needed our glasses but they did not know they needed glasses. So, it was expensive to create the demand. Another thing was the people that we were serving had very little capacity to pay. It was expensive to create demand and we could not create too much margin as we had to make the glasses, very inexpensive. We are a one product company and could not distribute our earnings through multiple number of products, which is a limitation for us. Also the people whom we were targeting were the poor people in the rural areas so our distribution costs were also high. The sales force was expensive to train and we had direct sales force channel rather than a multi lined independent sales force channel. The components of our model were elegant but expensive from a business perspective. How did you bring the cost down for a pair of glasses? It is true for any social business that pricing is key component. Initially the price for our glasses was Rs. 180. Over time when we saw that we were able to get some market penetration, we still realized that the glasses were expensive for an average person. We were forced to go back to the manufacturing floor in China and evaluate how we can retain value and make the cost significantly less. We started a program called the ‘Radical Affordability Program’ where we looked at every component of the glass manufactured in China and stripped out every cost that we could and in time we were able to lower the cost of the good by 50%. That helped us to come back into the market with a product that cost Rs. 100 or even lower.

“The good news about having vision is you can see a different future and the bad thing about vision is your vision always moves faster than reality.” Simply put from a business perspective it was economies of scale that you were able to achieve. But how did you overcome the challenge of distribution? The distribution was very much a challenge. We work on creating the market and the distribution at the same time in an under resourced environment, which is again why social enterprises are so challenged because they often do both independently. So in terms of distribution, one is hub and spoke model where we create low cost real environments, where people can come into the optical store and get glasses. From each retail hub we also have a retail channel and from each hub we have a van going out in each of the communities around the hub area to raise awareness and sell the simple reading glasses/sunglasses as well as take care of the simplest problems at the village level. We observed that the patients returned to the hub. And that’s what is called the hub and spoke strategy. The one way in which we have worked on distribution is by ‘Lens Crafts Meet Eye Care’ model. Our hubs are now based in eye hospitals and we are not only able to increase the patients who want to have cataract surgery but also provide glasses to people. 80% of our hubs are embedded in the eye hospitals. Second model is the partnership model which means we go to the other organizations which already have distribution platforms / structure, tell them the power of our product and teach them how to incorporate our eye glasses into their distribution channel. That’s a wholesale partnership channel. How do you see other large branded companies, as competitors or collaborators to solve the problem at the bottom of the pyramid? The other branded companies thought us to be a small NGO, not doing much work. We have started to get attention and lot of big companies are watching the innovative way we are tapping into a whole new market. There are 4 billion people on the planet who

Why do you think they are taking a back step and not really approaching you to do something together? I think a lot has to do with the historical mindset of the companies as they think themselves to be luxury companies, the ones who own the market, brands like Gucci, Armani, D&G, etc. It’s the sort of question like if you can make $10 on one person why would you make $1 on 10 people. But the problem with that philosophy is, it is harder to get the $10 on one customer which is not a growing customer. A growing customer is where you are really getting a huge margin but right now the whole mindset with organizations is a low volume high margin approach. It is not slated to reach the BOP and it’s not radical affordability, it’s not about solving social problem. It’s more about branding, fashion and providing to different segments of the market. VisionSpring sees our role as demonstrating to those companies that there is a vibrant market and there are economic viable business models that can scale through market forces. This would attract them to the market. So, an organization like VisionSpring is really redefining the very idea of capitalistic system or do you think that is going to be the new way the capitalistic structure is going to look in the future? I think that’s the new way the capitalistic structure is going to work. A capitalistic structure that supports disparity is not a sustainable one. We need to find new ways to tap into this wonderful thing we call capitalism and to do it in ways that bring a larger portion of the human family to benefit from power of capitalism. I believe that this is a new brand of capitalism called ‘Social Entrepreneurship’ but you can also call it ‘Emphatic Capitalism’ or ‘Compassionate Capitalism’.

Do you think lot of people would actually say that the person is naive when he is thinking like this? Over time it would become clear that a larger portion of the human family are going to want the business services that the smaller portion already has. In order for society to grow and income disparity to shrink, we need new forms of capitalism. And it’s not only a matter of business savvy, it’s also a matter of social equity or national security. Is there a model you are talking about which is replicable? I think it’s both blending of heart and mind. I think the old form of capitalism where Freeman said that it’s all about maximizing profits did not really take into consideration the whole human being. The complexity of who we are – we want to strive, we want the best for ourselves and our family we want security and to maximize profits, so there is a deep yearning within us to have a life of significance. Those yearnings are important. The social enterprise clubs are oversubscribed and people want this form of capitalism to flourish. What are the 3 things to be kept in mind before you actually take a deep dive into creating social enterprises? The first and the most important thing one needs is grit and perseverance. People who dive into this field and pursue the idea have to be sure that it’s meeting the heart with action because that’s where the grit and perseverance comes from. Second, you have to think of your Social Enterprise as a business. Unless you make a model and actually work and go economically it might be a small beautiful project but it would never come close to solving the problem that you are trying to solve. Unless you can tap into its market forces you won’t be able to scale the ideas. Third, is it’s all about the money and the people. So you have to figure out where the money has to come from and what kind of people you are going to attract. How can large enterprises learn from these powerful ideas? I do think large enterprises are going to have increasingly hard time resting on the laurels. They don’t think about innovation /new markets.

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earn less than $4 a day and the whole optical market is geared to the 3 billion people who earn more than that. The whole industry is skewed towards fashion and low volume - high margin direction and nobody is paying attention to the 4 billion people who earn $4 a day. Consumers need to read newspapers, see cellphones, and to read spiritual text and they have a huge need for glasses particularly as the literacy rates go up. So, by the time the other companies get there we can become partners but at this point they really don’t see us partners.

10 Who is Jordan Kassalow today an entrepreneur or doctor or social entrepreneur or business thinker? I think of myself as all of those. First and foremost I saw an equity/problem that needed to be solved. A problem that was simple, actionable, big and I wanted to see the world in a different way. The world is one way and I envisioned the world the other way. The good news about having vision is you can see

a different future and the bad thing about vision is your vision always moves faster than reality. Though I have spent last 10 years to catch up to my vision, I am going to spend 30 more. My belief is by the time we are finished with this and my life is through we have made a major dent in this issue. Kids won’t be falling out of school, adults won’t be falling out of workplace, we won’t be unsafe on the road, and that’s the kind of world I want to be part of.

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Capitalism

2.0 By Don Tapscott

13 “Perhaps the problem is not capitalism per se that is ailing – but rather its first iteration: Industrial capitalism.” latter day silk-hatted tycoons? Clearly it is a social economy. In a year or so there will be a billion people on this planet using social media daily. About 80 percent of the world’s population uses cell phones. The social world is transforming the way we create wealth, work, learn, play, raise our children, and probably the way we think. We’re all collaborating like never before and in business the hottest concepts are social – collective intelligence, mass collaboration, crowd sourcing and collaborative innovation. “Social” is penetrating every aspect of the economy and society. Social media, social networking, social business, social government, social entertainment, and social everything. One might suppose that the logical term to describe the synthesis of all things social would be “socialism.” Unfortunately that term has already been taken, as it were, so let’s opt instead for the term Capitalism 2.0. During the first era of capitalism, machinery was the means of production and the most important assets were physical and financial. Work was organized in hierarchies and capitalists had a single objective: Maximizing their personal wealth. The Internet is becoming a new mode of production that changes the way we orchestrate capability in society to innovate, create goods and services and even public value. The most important assets are contained in the crania of knowledge workers. Increasingly thoughtful people everywhere understand that an economy based on greed is not only unworkable, but threatens the planet. If Capitalism 2.0 were the most natural umbrella term to describe the impact of social media on our economy and society, what would be its guiding principles? If you look at social technology, business models and thinking today, you’d be in for some surprises. To begin, rather than social (state) ownership of everything it would be a society where innovation is driven by companies and market forces. There is a broad agreement that markets have historically provided the best incentives for

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Capitalism is the Crisis.” (This is not a crisis of capitalism says one Occupy Wall Street Sign.) The continuing global economic mess is causing many to question “the system.” From student protests in Europe to the Occupy movement globally, many are asking what are the fundamental problems with capitalism and how do we fix them. Recently the capitalists themselves are energizing the discussion. The Financial Times presented a multi-part series on the topic. The Economist – a sophisticated defender and reformer of capitalism -has discussed capitalism’s strengths and weaknesses at length. Business schools around the world are also debating the topic. And dozens of books written by business leaders from The Crisis of Capitalist Democracy to The Road from Ruin discuss everything from how to save capitalism to whether it is even savable. But perhaps the problem is not capitalism per se that is ailing – but rather its first iteration: Industrial capitalism. Around us we see industries in crisis and governments that can’t get things done. Media companies are failing and the financial services sector is increasingly reckless. Our energy grid and transportation systems need urgent renewal. Institutions for global cooperation and problem solving seem incapable of progress. But at the same time it’s clear that we’re in the early stages of a massive transformation. Society has at its disposal the most powerful platform ever for bringing together the people, skills and knowledge we need to ensure growth, social development and a just and sustainable world. The Internet slashes collaboration costs and enables deep changes to the way we orchestrate society’s capability to innovate, make goods and services, and to create wealth and public value. Companies and communities are working together in new ways on shared concerns, endeavors and challenges. People around the world are collaborating like never before. From education and science and to new approaches to citizen engagement and democracy, sparkling new initiatives are underway, embracing a new set of principles for the 21st century -- collaboration, openness, sharing, interdependence and integrity. While the contours of new institutions and industries are becoming clear, it’s less clear what this means for the fundamental nature of the economy itself. And what should we call the new economic system that appears to be rising from the ashes of the

14 innovation and wealth creation. But sophisticated companies understand that traditional industrial age approaches can be radically improved by social business. Today as Linux dominates large computers and mobile devices around the world, smart companies like IBM have embraced the open-source operating system, saving themselves hundreds of millions of dollars a year and generating billions of dollars in hardware and services revenue. Biotech companies cooperated to place their intellectual property – the human genome – in a commons. Nike gave away 400 patents to the GreenXchange on the principle that a rising tide lifts all boats. And in industries ranging from pharmaceuticals to auto manufacturing, competitors are beginning to share some of their intellectual property as a step towards improving their industry and their own chances of survival. Companies are learning that all intellectual property is not the same. Some intellectual property should be protected while it’s wiser to place other intellectual property in a commons. Like IBM, they save money, enhance their capability by sharing and then compete on a higher level, all to the benefit of shareholders. I estimate that if IBM had fought Linux rather than embracing it, the company’s revenues and likely market value today would be a third less than it is. Customers love the new collaboration. They purchase goods and services collectively on Groupon. They find the best hotels by sharing knowledge on Trip Advisor and the best restaurants through Restaurant.com. They lend money to each other through peer-to-peer banks like Community Lend. And they collaborate with companies, helping co-innovate everything from Threadless tee shirts to Doritos Superbowl ads. Under Capitalism 2.0, governments are still important. The notion that the best government is no government is foolhardy. However government bureaucracies could be smaller in many areas. The concept of “Reinventing Government” for better, cheaper government, has been around for two decades. Today, due to the social revolution it’s an idea whose time has come. The sovereign debt crisis in Europe and the spiraling debt in America and other Western countries calls for more than tinkering. Social media not only changes the way we innovate and create goods and services – it can change the way societies create public value.

Governments can become a stronger part of the social ecosystem that binds individuals, communities, and businesses—not by absorbing new responsibilities or building additional layers of bureaucracy, but through a willingness to open-up formerly closed processes and data to broader input and innovation. It provides resources, sets rules and mediates disputes, but allows citizens, non-profits and the private sector to share in the heavy lifting. This is leading to a change in the division of labor in society about how public value is created, and holds the

“We need to reinvent every institution in society around the social model for innovation, interdependence, sustainability and integrity.” promise of solving the debt crisis. But while private wealth and market forces are necessary, they are proving to be woefully insufficient to move the economy and society foreword. The #Occupy movement is correct in saying completely unfettered market forces would result in disaster. Loosely regulated bankers driven by greed almost brought down the global economy. The class divisions in society are growing, and governments have cozy relationships with corporations that often seem to prevent them from acting in the public interest. The 2008 economic meltdown underscored how interconnected our world has become. We need to encourage and enforce mutual cooperation through a new division of labor among the four key pillars of society: business, government, the civic sector and the new pillar enabled by the Internet – the individual citizen. There is no longer room for unilateralism, and part of the “social” philosophy is that business can’t succeed in a world that’s failing. Warren Buffett was called a socialist when he suggested closing tax loopholes for corporations and the rich. Bill Gates is marshaling his vast personal wealth and influence to make a better world – a new style “Socialist” if ever. Smart business leaders understand that the purpose of corporations goes beyond making money for shareholders. Some political leaders are starting to shift from the industrial model of democracy too. The “You

15 collaborate on the creation of learning for higher education. Car companies should be joining forces to advance fuel cell science. Banks aren’t lending money to small businesses because they are saddled with a trillion dollars of toxic assets left over from the sub-prime mortgage mess. The details of these assets should be placed into a commons so that they can be valued by independent modelers, helping banks clear their balance sheets and kick-start job creation. Capitalism 2.0 needs a global system with mechanisms for problem solving and governance that transcend nation states. Today’s institutions were created in a much different time, to govern a new world of nations after WWII. More often than not, national self-interests take priority when today’s challenges demand solutions that transcend the traditional boundaries of the nation-state. They make little room for the inclusion of authentic citizen voices such as the self-organized civic networks. There is growing urgency to rethink our aging global institutions of the industrial age. And today, there are myriad new collaborative models that are self-organizing to address twenty-first century realities. In fact the entire concept of social innovation – new thinking and action for the public good – is being extended beyond communities and nations to the global stage. They include some combination of the four “pillars” of society – the state, the private sector, the civil society and now empowered individuals. There is at least one big problem with this vision though. Such a model of capitalism can only be achieved in a smooth and managed way if today’s capitalists get on board. Unfortunately leaders of old paradigms are the last to embrace the new. The transition from agrarian feudal economies and societies to industrial capitalism was punctuated by revolutions – such as the French, American and National Independence revolutions across Latin America. Many of the leaders of the old model of capitalism are tenaciously clinging to the past and hoping that things will get back to normal. The upshot is that the forces of change – especially today’s young people – may have to find more extreme methods to achieve a new future. When extreme conflict, discord, rebellion and even revolution occur it’s anybody’s guess what the outcome could be.

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vote, I rule” approach is stalled and citizens are increasingly cynical. From electronic town hall meetings, challenges, digital brainstorms and open data initiatives, governments at all levels are reaching out to engage citizens in developing new ideas and solving problems. Capitalism 2.0 would have a different approach to regulation. To begin, business leaders would embrace good regulation, understanding that markets work best with strong foundations and good regulations. For example, Canadian banks avoided the entire sub-prime mortgage crisis and its aftermath because the regulatory environment kept the banks from getting into trouble. The upshot is that today four of the largest banks in North America are now Canadian, and of the largest 20 banks the top six low-risk banks are Canadian. With Capitalism 2.0, much greater transparency for every institution could change the regulatory paradigm, adding “citizen regulators” as a key element of the new economy. Governments would make everything transparent on the Web and let citizens and other parties contribute their data and observations. They could also let citizens help enforce regulations, perhaps by changing their buying behavior or by organizing public campaigns that name and shame offenders. Clearly, transparency is a substitute for better regulation by national governments and international institutions. More disclosure and increased civic participation would add significant muscle to traditional regulatory systems. Under Capitalism 2.0 there could actually be a chicken in every pot as the Marxists of last century sloganeered. The principles of collaboration, sharing, openness and self-organization outside the boundaries of traditional corporations, governments and other institutions are already starting to drive unprecedented economic, political and societal activity. But we need to move further. We need to reinvent every institution in society around the social model for innovation, interdependence, sustainability and integrity. In manufacturing, companies need to join initiatives like the GreenXchange, sharing know-how about creating sustainable companies. In pharmaceuticals, companies need to start collaborating on pre-competitive research and compete on a higher level. University professors need to join MIT’s open courseware movement and

Capitalism Is there an Indian way By Sameer Nagpal

Capitalism has created enormous value for mankind and improved our quality of life. Now we need a better version of the system.

The doomsday theory – truth or rhetoric? Citing growing consumerism, widening inequality, unsustainable growth, irreparable damage to the environment and scandals that fly in the face of business ethics, doomsdayers are predicting capitalism’s fall and the rise of an alternative cleaner system. The dominant emotion is that profit maximization as the over-riding objective of corporations must give way to a more tempered down, inclusive and responsible growth model. These failings are not just confined to the western world. Closer home, there are ample instances of meteoric growth of a handful of corporations that have not managed to have a positive rub off on the communities where they are present. On the contrary, they have often resulted in widening inequalities, creating unprecedented pressure on public infrastructure and other social discomforts. Arguments of growth and economic development (ostensibly for the benefit of all) are falling secondary to concerns like equality, environment preservation and protection of rights of people. And the organizations clearly aren’t doing enough to help ease social burdens. Take the case of Kingfisher Airlines - as the business plummeted, the organization socialized its losses in the way of bad debts for lenders, unpaid taxes and salaries, loss of employment and sordid tales of mistreatment of people, by a wealthy management that has turned a deaf ear. In other cases, activists, communities and environmentalists have taken up cudgels against unfair land acquisition for private profit; illegal and excessive mining by private companies that cause ecological imbalance, among others.

“A chapter in Bhagvad Gita says by merely abstaining from our duties and renunciation we will not be able to reach the perfection we desire.” These sentiments are a clear indicator of the older system not working. At the same time it will be naïve to believe that this brings us to the death of capitalism, from which will rise the phoenix of a new economic system that will be rid of all evils. The Alternatives The ‘save-the-world-from-capitalism’ brigade offers several alternatives. Some give the example of state cooperative economies like Quebec Social Economy that features greater worker controlled enterprises and mutual-aid organizations. Or the often cited case of Andalusia in Spain founded on mutual aid and collectivism in economic activity. These are good examples of unique and successful experiments, but these are experiments at best. There are questions of scaling up and feasibility when you consider politically and socially diverse countries like India. There’s also the curious case of Richard Branson, who after amassing great fortune, has linked forces with a few other like-minded wealth creators to coin ‘The plan B of capitalism’, a new ‘ethical-approach’ model of doing business. Is it a genuine attempt at reform or another ‘self-promotion’ attempt so that his enterprises continue to profit from the existing system? It is yet to be seen. Then there are hybrid capitalism models or as they are called ‘new operating systems’. The names are many – Sustainable / Breakthrough / Creative Capitalism, and their objectives similar. In this context, John Mackey and Raj Sisodia’s ‘Conscious Capitalism’ merits a special mention that has demonstrated, albeit with a small group of organizations, that profit motive can co-exist with sound business ethics and social responsibility. There is another alternate being proposed by India’s latest socio-political outfit Aam Admi Party (AAP) which believes in public opinion driven decision-making model. The question it evokes is whether in a chaotic democracy like India, can general public be entrusted to create equilibrium between

THINKERS

The world is lashing out at capitalism like never before. From being an accepted way of economic life and a harbinger of rapid growth and development, it is now being seen as a decadent system with little sense of social responsibility. While the hostility against capitalism has been simmering for quite a while now, the greed and lack of ethos of Wall Street has been amplified. The Occupy Wall Street movement in the U.S. and the subsequent Occupy protests around the world went on to highlight this dissent against the social and economic inequality, greed and corruption that crony capitalism has left in its wake. All over the world, wealth continues to get concentrated in the hands of a few, organizations privatize profits, losses are socialized, and there is very little consideration for social value.

18 “It is naive to believe that the death of capitalism will rise the phoenix of a new economic system that will be rid of all evils.” social and economic growth and how do you balance direct democracy by the people with a capitalist economy run by private enterprise. Finally, there are those that completely shun capitalism and advocate for equitable societies with minimum trade, and free of consumerism. Call them purists, escapists or whatever you like, and you would find many such examples in the Indian context. Left wing social activists, who are often anti-development championing the cause of social equality, ultimately end up widening inequality for the very people they set out to help. The answers are not easy. We cannot go in reverse, for capitalism has created enormous value for mankind and improved quality of life across the board, all we need is a better version of the system. So while we clearly can’t sound the death knell for capitalism, what is that other thing that we should be fighting for? What values should we be looking for in the new, evolved system? In our pursuit of a better version, will we end up succumbing to one of the ‘new operating systems’ propagated by erstwhile wealth creators who seem to have suddenly found their souls? Will we fall again into the trap of a new form of economic or political domination? And how much must we reform? Take the case of the new Corporate Social Responsibility rules introduced by the Ministry of Corporate Affairs, Government of India that mandates spending a percentage of profit earned by corporations on social development. Considering India’s gaping inequalities and dearth of resources for the development sector, this bill, which lets organizations self-audit and report, is laudable. But will such state-dictated reforms enable change or create more hindrance, needs to be seen. Is an Indian Approach the Answer? Like always, the Bhagvad Gita gives perspective on this complex issue. The Gita in its chapter on Karma Yoga says that by merely abstaining from our duties and renunciation, we will not be able to achieve the perfection we desire. At the same time, it mentions

that leaders need to be driven by a bigger, greater purpose and responsibility over self or mere material gains. In the pre-recession era, B-schools of the west and influential thinkers had already started talking about this form of inclusive model, fashionably termed ‘Karma Capitalism.’ It was propagated then; it is time to act now. As leaders of Indian organizations we don’t have to learn Karma Capitalism. Instead have to unlearn a few things, and invoke our heritage and cultural roots. Our ancient scriptures have taught us the importance of purpose beyond material gain, of treating the extended community like our own family, respecting and helping those that are marginalized and caring for our environment. The value of sacrifice or rather ‘take-some, give-some’ doesn’t make us weak or lessen our prosperity. It teaches us that we cannot grow in isolation; and when we treat the larger community as our own extension, everyone benefits together. As India liberalized and opened its doors to the world, we adapted a lot of great working systems from the west. But in our race to get ahead, somewhere along the way, we left behind our ethos. Values like philanthropy, sustainable living, austerity, reusing and recycling resources are not new to us. In fact, the west is learning and imbibing these positives from us. As stakeholders start demanding greater social roles and higher ethical standards from leaders and corporations, it is time for us to invoke our traditional Indian spirit of integrating social and economic value. The idealists can only guide us, the reformists can suggest alternatives, and the state can tell us when we go wrong. Ultimately, leaders will have to develop this value-based ecosystem in their organizations on their own if they want to last in the long haul. However, for this to acquire scale, we need to relook at our education system which has increasingly adopted western models. It is time to strengthen and give prominence to ‘value education’ and ‘moral science’ as part of our school curriculum. It is also necessary to evolve their course material with complexities of today’s world and expand it to cover senior secondary classes. Only by ingraining the lessons from our scriptures from a young age, we will be able to churn out leaders with values and commitment to develop an eco-system of shared prosperity. Capitalism, interpreted and executed in this manner, may no longer be a bad word.

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Connect! Discuss! Create Value! Compete! Leaders Working to Ensure Indiaâ&#x20AC;&#x2122;s Prosperity

The India Council on Competitiveness is a non-partisan network of leaders from corporate CEO, University Chancellors and Civil Society leaders working to make India a competitive nation with a mission of setting forth an action agenda to ensure prosperity for all Indians. Be part of Indiaâ&#x20AC;&#x2122;s growth story with the Council. For further details visit www.compete.org.in To join the council, please contact: amit.kapoor@compete.org.in Membership is by invitation only

In Conversation with Mike Walsh By Amit Kapoor In an interaction with Mike Walsh, CEO of Tomorrow, a global consultancy on designing business for the 21st century, he shares his view on the how the rapidly digitizing world will fundamentally enhance how educational institutes and corporates, large and small, deliver.

Could you give me an example of how kids in China and India can drive a lot of change? I realized that the new culture that was created by the exposure to technology was very different. So, a young kid growing up in New Delhi had more in common with the world than the kids growing in Saudi. This is because they have grown with a common set of platform devices and they are more globally aware and interconnected. It means that information asymmetry is getting reduced. And that is going to change the way society functions. Definitely, not just the devices but also our perceptions are connected. I think it’s changing. Could you tell me more on the connectedness of perceptions ? If we were to ask a kid about its horizon of knowledge about 20 years ago it would be limited to school playground, library, parents etc. But the broadcast media changed the perception and brought the world together. Today the kid’s horizon is infinite. And there is no shortage of information. They can meet people, make friends with the kids living on the other side of the world. So, their barriers are more to do with the ability to ask relevant questions. I believe that newspapers could be conduits of managing information/opinion which go out. Do you think that attitude of the editors would change over a period of time? Or the whole behavior of people on how the information is pushed out on Twitter or Facebook? The newspapers underestimate business of print media. Newspapers are brands and their brands

“10 years ago we thought it was a war between the physical and the virtual world without realizing that the physical world was being digitized and there was no separation.”

stand for the investment in content, with proper investigation, fact checking, long form analysis, and also an investment into curation. Also, the more noisy the world gets there is more information to be disseminated, but it is important to see that we have got brands that we can trust, and they do not have any vested agendas. We can have media brands like New York Times, Rediff and ET in India become global brands in addition to them being local brands. If you have ET made for a smaller region could you have 25 different versions going out? Yes, the global brands are there because of the algorithms of software and there is no reason why a Wall Street Journal could not do a local edition in India. We could also use paperless technology, which curates the links and broadcasts out a newspaper. How do you think other businesses, which are brick and mortar businesses, could change because of this? For me, the difference between digital and analogue is completely arbitrary. 10 years ago we thought it was a war between the physical and the virtual world without realizing that the physical world was being digitized and there was no separation. So, if you look at retail, as today, the really smart retailers have created an engaging process with the customer. We are collecting more information that helps you to be a better retailer and engage better. The question is that you have a seamless interaction model regardless of how customers want to deal with you. Why did you publish a book in a print format? If you see the actual book then you would realize why it is designed as a physical object. It’s completely visual and the book has photographs taken in India. Also, I wanted it to be separate from the digital world. I am writing for people who have to some extent also confronted the digital world. Chose something they could interact with, without it being purely digital. The next book I am going to write would be completely

THINKERS

Could you tell us something about yourself? I am a lawyer by profession but have been a participant in the digital revolution for the last 18 years. The real life-changing moment for me was when I started to spend more time in Asia. I was working on the internet strategy around India and China. Before 2005, I realized that the internet revolution had not really begun. The iPhone had not hit the market and I realized that what the kids were doing in China, Korea and India was going to change everything. This inspired me to write a book and I looked at emerging markets because they were the key to understanding the future of technology.

22 opposite to this book. Ultimately the format of the book does not matter. It just has to be pure ideas. What is that dichotomy between your thinking and the thinking of the publisher? I wrote the book in 2006 and the publisher took 3 years to publish it. And now when people read it they find it futuristic, which is very flattering. But the fact is if they had published it when I wrote it in 2006, (before the iPhone came up) where I had predicted the rise of smart phones, of cloud based entertainment and biometric senses on phones, then people would have thought I was a real genius. But now people read it like a current timed book. How do you perceive change in technology as a huge piece of inclusive growth? To me it’s absolutely an issue because one of the things that people don’t really appreciate in US is the larger proliferation of technology in the hands of much wider social bracket. So, if I can’t afford an iPhone I can still afford a $50 android phone that runs with a very good processor. What’s missing is a truly global adaptive education platform that allows the new young generation to improve their prospects. All the information out there is available to take it to a new level, to a new social class. Only the organizational information is missing. A curriculum that takes an ordinary kid that has a $50 smart phone and gives her a chance to compete at the world level. So, it’s not online education courses, it’s sort of a personalized one to one algorithm driven education. When that happens, there is going to be a bigger impact on inclusive social growth. Can you just build a canvas for me as how a young kid in 10 years could actually be learning? So, we have built the model of online education by basically digitizing the classroom. It’s very archaic, if you look at the cutting edge what they call adaptive learning. For example, if you are learning about manufacturing then it may be that the next thing that you have to learn is something abstract - to do with fluid dynamics. It’s not actually the traditional ways of learning. Today, we have the ability with software or high tech companies like IBM which just open sources of information. If we imagine a young kid 15 years old, growing in Brazil getting an iPhone and when he opens up the phone, the system asks him a very basic question to gauge its initial level.

It offers a bit of content initially maybe a video and then it opens up another module and slowly like a tree it takes him to a journey of knowledge. In the end the child would have the same level of education as compared to a young folk studying in school. You mean that the future would be very different from the universities of the present era? Yes, physical universities would be very rich as one has to go physically to attend the classes. It would be only 10% of the population. Attending the university physically would be a luxury. How does a guy who is very bright, exceptionally intelligent and has done education on the internet compete with guys who are supported by huge brands like MIT, Harvard, Stanford, etc.? But he would have taken Stanford modules. What you are saying is that the modules could happen from anywhere? Yes, this is what will happen. These global brands will materialize the education, though with a premium experience for the super rich which would cost USD 20,000-50,000 where you would be actually with the class, with the actual lectures. But everyone else would get the virtual versions of these, which is very powerful. These things at the moment are disputed and the experience is not great. We would need adaptive software to organize the online content. And then there is a need to have an adaptive assessment to really work out how this one individual with his capabilities of learning compares with the people at the world level. If we are not going to go by the traditional model then one needs to have a sense of the capabilities of the person to make him globally marketable. How do you think professors would have to change once learning is going to change? The professors would have to be star professors, as they would have millions of students in their arc of influence. It would be hard to be an average professor. He would be making the same amount of money as a movie actor. And you know to some extent India has exported a lot of academics who are all rock stars, they have done true publishing.

What do you think the business model for the future for typical enterprise will be? The business models should not be set, they should be constantly evolving to market opportunity and context etc. To me more interesting is business design or the organization design. The more important thing is the size of the organization, the parameters of who is inside and outside of it, the tasks done by it, the technology it focuses on to differentiate. So, the design of the organization is the most interesting question of the 21st century. How do you look at a conglomerate like GE which has 80-100 businesses and does very well compared to young organizations which could actually create a lot of flutter in the system? We could have a huge organization but the control mechanism has to be small. So, one can have a huge organization where technically everyone is on the payroll but one can’t have the model of one CEO who sets the global vision. The information that is coming from below takes too long to reach the top. For example, if you look at the model of Nike, the decisions cannot be made by the people sitting at its headquarters as they are not aware of the requirements or needs of the people to be hired or the mission of the company at a particular place. When we look at other companies like Twitter, Facebook and Google, that started in an innovative way but then they started to build themselves as industrial conglomerates because the number of people increased in these organizations.

So, what you are saying is very small organization maybe 2 or 3 people could actually create a tremendous impact? Yes, because what you are really measuring is not the size of the organization but its position in the network. So, if you look at network theory you have the most valuable parts of the network in hubs that connect elsewhere. And you don’t have to be physically very big but you just need to be networked. Sometimes as a sole practitioner when I started hiring people I realized that I would be spending time on not doing what I do best, but would be managing their careers. In due process so many layers are created that it would take years to get to a point. We also need to sustain people who can do best but this model does not work well for everybody. You have to reduce your ego to really do that and focus on how you fit into the global network. How do you think leadership is going to change? It’s a very complicated question. Yet, it’s deceptively simple. In some ways it is more interesting to ask; what are going to be the responsibilities for leaders to amplify their ability to influence? And secondly, how do those leaders take better decisions? The truth of a great leader is to be a great brand. It’s just that you need to signal what you stand for in order to let the people know what they follow. Most of the really smart decisions are happening everyday at a much smaller level because they have created a culture to empower the people to constantly be making lots and lots of very effective small decisions. Driven by data or hypothesis or testing experimentation, scientific methods, not just about ego and power points.

THINKERS

“The truth of a great leader is to be a great brand.”

My Professional Journey and Where We Head Next By Sunand Sharma The author uses his professional experience from the 70â&#x20AC;&#x2122;s to the present century as a lens to reflect on the impact of globalization on India.

25 “GE began following the Citibank lead in establishing beach heads in to places where few dared to venture.” really great globalizer of US companies, GE began following the Citibank lead in establishing beach heads into places where few dared to venture. If I may be permitted to say so, it was his Citibank that afforded the opportunity to a number of my peers to begin to see over the lip of the cup that was India of the 70s. I know that classmates of mine rose to high positions in Citibank and helped in the revival of South America and manage the wealth of Saudi Arabia. This again is relevant. Were it not for a confluence of two matters: the rise of the Japanese and the external outreach to the US as a consequence and the lack of opportunity in India, a whole bunch of brilliant Indians would not have left India to search for pastures abroad and therefore, the West wouldn’t have learnt of brilliant Indian minds and the East may not have been discovered as fast as it was. Most people think that behind closed doors, great strategies are thought through and then implemented with the excellent results for all to see. Perhaps, this is true once in a while. In my global exposure, perhaps it is personal to me, but, then having had the privilege of being at the table when many a key strategic decision has been made, I can say, yes, there is strategic thinking, but, finally it is the resoluteness of leadership in the face of opposition to make counter-intuitive decisions that work because the heft of an organization backs these decisions. To round off the 70s and 80s, and connect the dots for you, let me remind you about the asymmetry of the times and the unintended consequences that resulted in creating new management and strategic thought paradigms. This is from my own experience as I, unlike large numbers of my peers chose never to leave India and saw it from a different vantage point. I now realize that this has provided me with a ringside seat to having seen about two thirds of India’s post-independence industrial and management development. I wouldn’t exchange that for love or money with anything else! Unintended was the fact that Mrs. Indira Gandhi brought in an internal emergency in 1975. By 1977, a new government came in and a die-hard socialist Union leader became Industry Minister driving out

THINKERS

I am presenting during thoughts drawn from experiences my professional journey. The objective in doing it this way is to set the context for conclusions the way forward and some out of the box thinking. Life was much easier when I commenced my career in the India of the 70s. One had a choice to either work for the government or a government owned entity or for one of a handful of private sector enterprises if one wanted to gain experience as an engineer! I chose the latter and started working in a US owned tyre company with a factory in India. It was by sheer luck that it happened to be an industrial company and that too US owned. In the 70s the USA was not a very welcome country in India which had turned sharply left and socialist! So, here I was in a US owned company in sharply socialist India. I am glad it was that way as I would never have learnt the contrast between private enterprise and the freedoms enjoyed therein versus the strait-jacketed socialist pattern of life, as I came from a long line of government servants and had seen plenty of that. When we look at the 70’s there was a strong dominance of innovation done in the West and all technological developments arose from there, except when it came to space and military materiel in which the USSR was ahead in many ways. It appeared then that this dominance would continue forever. Consequently, most of the West did not realize that the Japanese were about to re-order that thinking and boy, did they do it! I remember well the period of the rise of Japanese automobile the and appliance companies and their entry into US and Europe causing the first major developments in automation and new style of management to emerge in the US as, to put it in the words of a former boss of mine, “We’re going to need to hunker down, re-invent ourselves and not let them eat our lunch”. Well that’s what that company did. I am referring to GE. It hunkered down and re-invented itself, setting the trend for dozens of others to follow and left behind an iconic figure in Jack Welch, who re-ordered GE as an enterprise and if I remember correctly took it to a market cap close to that which Apple enjoys today and, that was twenty years ago. It was about productivity gains, capital turns, “boundarylessness”, transparency, ethics in business, and above all globalization. Few recognize or, indeed know the cause of the move of USA companies abroad in the early 80s. As the Japanese were moving in to the USA as their new frontier, at the behest of a great American banker, Walter Wriston, a Board Member of GE and the first

26 amongst others Coca-Cola, Pepsico, IBM and GE from India! In came brands such as “Double Seven” and “Lehar” for example. But, this was not to last. The Japanese were entrenching themselves in USA and the USA needed to re-enter India industrially. Not many know that it actually occurred at the behest of Indira Gandhi. She returned to power in 1980 and amongst the first things she did was to diversify her military purchases. Few will know just how strong this is in assisting trust to develop between nations as you depend on your security needs on a foreign power. In this case a gigantic shift after the rebuff Indira Gandhi had suffered in the 60s at the hands of President Lyndon Baines Johnson. Contained in two major purchases of that time rests the story of almost all the India-USA high technology relationships that developed as a consequence. The military engine for the Indian Light Combat Aircraft was a GE F404 engine and the Cray supercomputer for the Indian Meteorological Department was authorized for sale to India. This actually occurred over a cup of tea between President Ronald Reagan and Prime Minister Indira Gandhi in Cancun in the early 80s. This opened the doors to a vast number of new investments from the USA to India. Thus, whereas strategies may have been discussed in many a Board Room as to how to enter India and seek a base here, it was disparate strategic needs of India that caused the opening to happen. The jet engine was important to India as India needed to design a unique delta winged fighter plane with the lightest engine by weight with the highest thrust and the Indian Meteorological Department needed to provide the Indian farmers with at least 72 hours predictions of weather so as to assist them in protecting harvested crops. But, this had the impact on all that came in the future. In summary, if you were to climb into a time machine and arrive into India in 1980, all that you had learnt in Management School would have helped, but, you would have needed a dose of deep strategic political knowledge to predict the future and assist you in your investment decisions. Above all you would always need “intelligence” in all meanings of that word. This is what I wish to emphasise so far. To succeed you need to have all the basics and then a secret sauce. India received a dose of new USA investment on the back of these key events. Coca-Cola, Pepsico, IBM and GE were all back and on the back of these, came a large number

of other companies to re-establish or establish themselves in India. Coming to the 90s there are multiple reasons attributed to all that happened in the world in that decade. When we read in the future about this period, we will be told of all the massive changes that occurred. The Berlin Wall had already fallen. Words such as Glasnost and Perestroika had become household names. Deng Xiao Pengs’ aphorisms were Legend and China had embarked on becoming the factory of the world. Suddenly, what the USA had experienced about its lunch being eaten in the 70s and 80s by the Japanese, the Japanese now had the same queasy feeling and began their outward

“Invest heavily to ensure that there is a market share in these new growth countries and ensure you have an advantage by localization.” expansion into East Asia and India. In India, it caused the creation of the automotive sector as well as the home appliances sector like never before and then this was followed by the great South Korean arrival of Hyundai, LG and Samsung. Names that are now so familiar to Indians that they are taken for granted as forever having been here. Quite separate from this, something else was cooking. Going back for a moment to the IBM exit from India in 1977, it left behind the worlds’ largest number of programmers who knew conversion from UNIX to DOS. Then came Y2K. Guess what. Unintended consequences went to work again. It was a discovery the world made when TCS and Patni computers sent their programmers overseas to protect the banking and insurance companies of the world from a crash that could have occurred on 01/01/00 meaning 2000 or Y2K. This is significant because all the great Indian IT companies viz. TCS, Infosys, Wipro, HCL etc. commenced their global foray on the backbone of this event. The rest as they say is history. So, how much of the decision would you attribute to core strategic thought and how much to asymmetrical events? I am sure there is analysis available on this. Also, were it not for the ignominy India suffered in having to despatch gold to London as collateral in 1991, would India have gone for the massive re-

27 by global Original Equipment Manufacturers. As a matter of fact it is using its vast financial reserves as a sweetener to sell to, guess where, India, East Asia and Africa. So, yet a new paradigm shift is in the making. Surviving locally in Europe and North America, whilst expanding in new markets, without the sweetener of money. Quite a challenge you would agree. I cannot speak for others, but our reaction has been exactly the same as that anyone would take to protect their future: invest heavily to ensure that there is a market share in these new growth countries and ensure you have an advantage by localization. What I do know is that India is not yet well prepared, and I hope sincerely it will move in that direction to encourage entrepreneurship and innovation. I have tried my personal hand at that and came face to face with the strong arm of the State in everything we do in India. The way the country is set up is not for flourishing private enterprise, but, for a strong State control as in the past. I hasten to add that most leadership in India now understands this. Therefore the atmosphere should or hopefully will arrive where this kind of a remark is a thing of the past. India has jumped to being a disproportionately service sector economy before becoming an industrial economy. In agriculture China has a share of 34.8% of labour force vs. India’s 53%, in industry China is 29.5% vs. India’s 19% and in the service sector China is 35.7% vs. India’s 28%. Thus, we now enjoy the dubious distinction of having more people in organized security services than in all of organized manufacturing! This just must change, as otherwise 10s of millions of Indian will not move from farms to industry. 53% in farms is just too much. In USA as an example, only 0.7% of labour force is in agriculture and 20.3% in manufacturing with the balance in services sectors. In conclusion…. Today’s scene in India is that we haven’t really designed the framework to build India insofar as large infrastructure is concerned. The excruciating pain to implement projects in power generation, power transmission and rail transport is of such an order that we truly have to enjoy pain to jump into these sectors! Across the board, we have complicated matters to a point that we appear to be at as standstill. What are the solutions? I believe we will need to have the construction of physical infrastructure

THINKERS

opening of the economy it did then? I don’t have an answer, but, most probably not. Also, did the collapse of USSR also have something to do with it? Perhaps, yes. Nevertheless, India changed like never before and to my mind what was ushered in as a veritable revolution was the arrival of mobile telephony. I remember well sitting in meetings in which India’s present day largest mobile telephony provider, Bharti, would be discussing whether in 5 years they would achieve 36,000 subscribers in Delhi! At about 900 million users in India today, that is so laughable. But, see what else that caused. Globalization by Indian companies. Bharti is now the largest telephony provider in Africa. And, what a change it has brought to all Indians. Today, on TV as I see the son of a street side banana seller arrive at the Junior Indian Idol and on being asked upon his selection to the next round say that all the music he learnt he did so using his mobile phone, I know that the revolution is complete! The 90s were a decade of massive change. The greatest decadal change in the Indian economy took place in that decade. The greatest, largest IPOs took place then. The arrival of the private sector in all kinds of space occupied by government: roads, airlines, airports, telephony, electricity etc. has changed the way business in India is done. There is so much excitement in the air. The opportunity to build a modern nation arrives but once. 2008 will be forever remembered. Lehman will be remembered. The cause and effect is epic and continues. We have all had to tear up our scripts and re-write them as a result. Again the effect of unintended consequences. This time, the terrible contraction of Europe resulting in despair in country after country with acronyms being developed such as “PIGS” for Portugal, Ireland, Greece and Spain and so on. As I now head the India and South Asia operations for a company headquartered in France, let me share a statistic or two. In the past five years the markets have shifted so dramatically that no management teaching could prepare you for these. Survival and in the midst of crisis, expansion and maintaining profitability is no mean feat. Yet that is what we are doing. We used to have 70% of our business arise in Europe and North America. Now it is 40%. The shift has largely been to developing economies, India, East Asia and Africa. China has hunkered down and has created its own national champions and no longer welcomes setting up of manufacturing

28 recognized by political parties as a key element lf their respective manifestos. We will need massive amounts of land, cement, steel, copper, aluminum and all the skill sets thereafter to build projects. We lag in this area to a shameful extent. You just have to see the abject failure of municipalities to collect and dispose off garbage to understand this. Going forward, I do believe that if we are to achieve the goals of providing electricity for all and vast expansion of rail transport, we will need to modify the administrative processes and methodologies dramatically. Otherwise we will not get to where we need to. In other words we will need to dismantle the complex state run structures and move to open and transparent mechanisms with a greater and greater role by regulators and a minimal intervention by bureaucrats. I believe that we in India will need to write our

own rules of the game. Nowhere in history, including in China has so much been attempted to be built simultaneously as we are attempting to do in India. As you would have noticed, I havenâ&#x20AC;&#x2122;t relied on statistics based on, we achieved this and this against that and that as per the Five Year plans. It is irrelevant as we never ever achieve any of the planned targets on infrastructure. Therefore, a vast dose of expansion in both the investments and concurrent with that the rewriting of the rule book is essential. What I am suggesting is akin to rewriting the very manner in which Government is to run to the manner in which the private sector participates in this vast sector. We would need to identify common thought and work towards writing these new rules for building India. I look forward to sharing ideas on this with like minded friends.

THINKERS

In Conversation with Christian Ketels

By Amit Kapoor

In an interaction with Christian Ketels, member of the Harvard Business School faculty at Professor Michael E. Porterâ&#x20AC;&#x2122;s Institute for Strategy and Competitiveness, he shares his views on the future of capitalism and some key ingredients needed for its evolution both in the developing and developed world.

31 that everybody receives the same but basically people have a chance and an opportunity to achieve that. People have to have the ability to compete effectively in this type of economy so they become strong against market dominance and market power. In the run up to the war we had these industrial conglomerates in Germany who became very powerful. There was not a market economy but a market economy with a few people who had all the opportunities and the rest did not.

How do you think crony capitalism is going to get resolved? In countries like India and Brazil, the biggest issue today is accumulation of wealth in a few hands. I don’t have the answer. We are in the midst of figuring this out. The problem is getting much more visible. It is prevalent in many different societies where the top 1% or 0.1% are controlling the wealth. People are looking for ways in which to organize markets so that they exhibit a fundamental sense of fairness. As a German, it reminds me of a model that came up after the war in Germany which will scroll up the social market economy. I don’t think that’s the solution but I think some of the philosophical ideas from that approach, which of course came after disastrous experiences in many dimensions, are quite relevant in this discussion. Basically, the idea for the social market economy is that the market is a very powerful instrument to lead to a fair and equitable distribution of opportunities and also outcomes. It does not mean

Something else is happening in Europe— countries like Spain, France are facing a very dramatic issue and have also been market driven economies. They have looked at social welfare in a strong way but they are actually in the doldrums. Secondly, when you say markets would provide a level playing field that they would create true competition—the internet was supposed to do that. Is that happening through the internet? You suddenly see behemoths like Google, Facebook who are coming in and causing a lot of anxiety. Let’s start with the European situation. There is no easy solution. A social market economy cannot fix all the problems. If we want to raise the prosperity of societies we need to upgrade competitiveness. We need to build the ability of people to be productive. And if we want people to have share of that then we want to create a market system that really gives returns to high productivity rather than to powerful positions. I think Germany has been better able to upgrade

“People are looking for ways in which to organize markets so that they exhibit a fundamental sense of fairness.” Market economy can work effectively for society if there are certain rules in place so that the market process can really work out. Freedom and choice are key ideas for social market economy. The problem with planned economy is that it is not only much less efficient economically, but it inevitably gives some people politically a lot of power. And it really reins in the freedom of many others.

THINKERS

How is capitalism going to get redefined in the next 10- 20 years? I think it is going to be more of an evolutionary process. One of the key trends you see in public discussion is that there is a sense of disconnect between the pure economic model and the markets that drive our economy. The needs of societies in emerging and advanced economies are going in different directions. In emerging economies most of the middle class is clamoring for different things, not just jobs/GDP growth, which continue to be important, but they also want to see other things. In advanced economies there are concerns that the value being created in our societies is not equally shared and that there is lack of opportunity. Hard work and initiative are not getting the right kind of returns any more. My observation is that the most interesting stuff happens when people think of how they can use the market as a tool/ instrument. The market is a powerful tool that we have for organizing a society and when we think about allocating resources and so on. But then we have to see it as a tool and not as an objective in itself. Societies have their own objectives and they have to do with prosperity/freedom/development much more broadly defined, than just GDP terms, and we have to think about how we can connect these things.

32 its competitiveness and the productivity of its companies, employees and also of the social systems than some of the other European countries. Both things need to happen—having an effective market that really allows people to be productive players in the system is one part and the other part is that you build their ability to be productive. So, you need to invest in skill development and create the right kind of underlying fundamentals. Otherwise if you have an effective market but people don’t have the ability to compete globally, they are still going to be poor. That’s the kind of fear in the global economy and global economy is harsher than it was before. The issue with Google and new technologies is one that I am less sure about. I mean I think you are entirely right that there are new technologies that seem to have huge advantages of scale and so on and one has to think very carefully about this. That being said, that the large companies seem to have a lot of dominance in their individual markets, it is also quite interesting to see how they respond to constant threat and challenge from new entrants. For instance, why Facebook is paying such an enormous amount to Whatsapp—a small start-up, is that they feel threatened. They really think that some entrant like that can erode their position. We as consumers of these new technologies are fickle and we move to new platforms. It’s not quite clear as yet whether these big companies are the monopolies of the future or they are actually contested market leaders. They have to be on their toes all the time because there are new technologies being offered by new entrants, giving more options, challenging larger companies constantly. There are 2 distinct sets of countries. One is the US and countries in Europe and then the rest of the world. They are at different evolutionary phases of development. The struggle with countries like India, Brazil, and China is going on at a more fundamental level. So, where do you think countries like these would have to start? If you look at India and Brazil as examples, the 2 issues that I mentioned, one is the productivity and on the other hand the kind of effective market system that allows productivity to rule – to me it seems that both are very connected. In India and Brazil, the issues of corruption and bureaucracy

exist. Strong, entrenched powerful groups are a burden on competitiveness. They lower the productivity of societies. At the same time, they also create market systems where the returns on a given level of productivity of the economy, are not distributed fairly in terms of productivity driven. They are captured by interest groups. And so in that sense the institutional issue is very critical in trying to address this. We are far beyond the answer but are starting to better understand how this happens.

“A social market economy cannot fix all the problems. If we want to raise the prosperity of societies we need to upgrade competitiveness” The old answer was to say that okay we do see in a country like India the market system does not provide returns that we think are in line with our social objectives and the way we think the societies should look like. So, let’s rein into the market process. The problem is it further erodes your underlying competitiveness and productivity so the cake gets so much smaller and that’s a problem. I would like to bring in the ideas of Hernando de Soto here. Somewhere there is a lot of juxtaposition between your ideas and those of Hernando de Soto who said at one point that it’s about resource allocation, land rights, and so on in terms of how markets are going to be more effective in terms of distribution of resources and creating competition. I think that there is a lot of alignment in both our outlooks. I had the opportunity to meet him in Peru some years back and we had a long dialogue about his model and how it could be scaled and so on. I think he has a great insight and has eluded people from advance economies like myself, simply because we just don’t know about the realities of the emerging and developing economies. I think he pointed out that just because property rights are not formalized in the sense that you know them in the western system of US and Europe does not mean they don’t exist. There are informal property rights in emerging economies and there is informal property actually. The poor do have some assets that are effectively under the economy’s control

Do you think it is a smart idea to have certain percentage of your profits go for welfare or towards CSR or has it got to be done in some other way? I am skeptical and my thinking has been hugely influenced by Michael Porter and what I have heard from him. Sometimes people forget about what Porter pointed out about the scalability of these efforts. The problem with efforts that suggest that profit is bad and we should think about social responsibility and feel obligated towards investing in CSR is that they are essentially not scalable. If we want to make a dent into the economic issue of development and address the many social issues that we face in all of our societies we need to find profitable ways to address those. Only then we can come up with enough scalability and I think there are some things basically that government

needs to do for public good and we need to look at them differently but for many things we can use market forces. The idea of competitiveness is built on the idea of shared value or social progress. It falls into place if we do it right, but is it going to resolve all the issues that the world faces with regards to prosperity, distribution of wealth etc? Competitiveness is the foundation that really sets the level of value we as a society can generate and is driven by skills, infrastructure and rules and regulations. There is a market system on top that basically sets the context in which people and the companies make the choices and how they leverage those opportunities for productive activity. Shared value – let’s think about how we can make sure that lot of economic activity is serving needs of our society. That goes back to Adam Smith. There are a lot of old patterns at play that most money is for the richest people and that’s where the highest opportunities are. That also requires rethinking in terms of the companies. Companies are profit maximizing machines in the long run, but they don’t always get it right in the short term and that’s where it is becomes very important to have that debate within the business community—to understand the opportunity for shared value and the business case for that as well. Anything else you think we may have missed in this conversation? We need to be careful with terms like capitalism. We should accept that we are starting to understand the problem and can frame it much better today than we could 10 years ago. I am not sure whether we have the solution. In fact a lot of policy changes you see are dominated by the short term macroeconomics problems. This is what people basically are busy dealing with rather than thinking of how the structural things can be put more into shape. We need to accept the scenario more as a challenge rather than a solution that we are touting.

THINKERS

and if we are able to mobilize that and support these structures that have been created we can do much more. I think an important insight was that you knew better than to substitute the market by government intervention and social policy. We need to bring these people in to the market system and give them a good shot at competing effectively. And that they have property rights are an important element. So, I think you made a huge contribution to the debate and also kind of really changing the self perspective of many people in poor and emerging economies. I think it really points out that you can do it. You are already finding a lot of great solutions to these real problems that you are facing. Where I am a bit more skeptical is whether the focus on property rights is sufficient. Property rights are extremely important but so are many other things like skills, access to capitalism, infrastructure, and so on. There are a lot of things that have to fall in place. We think about this as more of a puzzle and it is true that at different points in the economic development there are certain pieces of the puzzle that are really critical for you to make the next step. But which pieces of the puzzle these are is very context dependent.

Thinker in Bokaro Jail By Chetan Mahajan No matter how terrible the experience, one can derive lessons and apply them positively to life. In this piece, the author supported with excerpts from his book The Bad Boys of Bokaro Jail, reflects on his harrowing month in jail and how it tested to the T this philosophy he has endeavoured to live by.

35 “Attitudes towards women (in small-town India) are downright scary. When I was imprisoned, the Delhi gang-rape case was very much in the news. And surprisingly, most men in the jails, and also the local press, did not quite get what the big deal was”. my best not to sit in judgment.

convicted The onlyprisoners. convicts This jail is a smallyet. one with 275-odd This here, I think, are includes some eight to ten women in a separate building, Aseem and Nageshwar and they also both have who are completely isolated in their own section of the their cases jail. The men havein no appeal. interaction with them. Importantly, everyone in the jail is an which means nobody I obviously doundertrial, not know all 275 inmates, but here has been convicted yet. The only convicts here, I have with and would think, arehad Aseemconversations and Nageshwar and they alsomany, both have their cases in appeal.

1. One misdeed – even a huge one – doesn’t make a man fundamentally evil. broadly classify the prisoners as follows: Many people who meet me ask about the other I obviously know all 275 inmates, but have had This do is not a rough categorization. There are grey people I met in jail. The impression they all have conversations with many, and would broadly classify the zonesasthat exist—for example, some of the is that everyone in jail is unmitigated evil – Satan prisoners follows: himself. In reality, there is a lot of pretty regular folks. Many are people you can sit and have a All Prisoners conversation with. The fact is that jails are not full of serial killers and professional assassins, although they are Victims Criminals there as well. You have enough people who acted in anger on provocation, or got tempted by a cellphone or bicycle which was left unattended. People incapable Innocent people One-time of defending Career Criminals So a lot of them are just men who have made one framed offenders themselves huge mistake sometime in their lives. The best society can do is to give such men a This is a rough categorization. There areare greyalso zones that innocent people framed possibly guilty. It second change to come back into the mainstream, exist—for example, some of the innocent people framed is also impossible for to say. Similarly, many of the and have a second shot at life. Unfortunately the are possibly guilty. It isme impossible for me to say. Similarly, many of the peopleof incapable of defending people incapable defending themselves may prison system mostly does the exact opposite of that. themselves may actually be guilty. But in my view they are actually be guilty. But in my view they are victims (Excerpt pages 82-83) victims nonetheless. nonetheless. As I feel more secure and comfortable in my new At one level everyone in here is a victim of the legal system. onefewlevel everyone here is a victim of the surroundings, I have also started talking to more Only At a select know how to use it toin their advantage, and those people rarely land up in jail. legal system. Only a select few know how to use it people and learning more about the jail. There are to their advantage, and those people rarely land up many questions one can ask directly, but many that 2. An empty mind is a devils workshop in jail. one cannot. I also realize that some people hesitate The biggest problem in jail for me was not physical discomfort. Or pain. Or hunger. It was to speak openly in front of me because they feel boredom—the lack of anything productive or meaningful to do with my time. That is why I 2. toAn empty is awhich devils workshop that I will stand in judgement, and probably judge started write my diarymind while in jail then eventually became “The Bad Boys of Bokaro Jail”. The biggest problem in jail for me was not physical them harshly. Being in a jail myself I try my best not Or pain. Or hunger. It was boredom— to sit in judgment. And I wasdiscomfort. released in a month. the lack of anything productive or meaningful to This jail is a small one with 275-odd prisoners. do with my time. That is why I started to write my This includes some eight to ten women in a eparate diary while in jail which then eventually became building, who are completely isolated in their own “The Bad Boys of Bokaro Jail”. section of the jail. The men have no interaction And I was released in a month. with them. Importantly, everyone in the jail is an Now imagine the average jail inmate, who would undertrial, which means nobody here has been

THINKERS

The fact that I’m writing for this magazine, I guess assumes I am a “thinker”. I can’t say much about that, but yes, I did actually spend a month behind bars in Bokaro jail. The initial stuff one has to deal with after walking out of jail are typical—stereotypical reactions of stigma, peoples curiosity about possible physical and mental abuse, life behind bars in general, and so on. Slightly later the “sensationalism” of the story itself (corporate guy, lands in jail, writes a book) kicks in. Now, since I am comfortably distanced from the experience with enough time between me and my jail-time, I have been thinking about the learnings from the experience. There have been quite a few. I am using excerpts from my book, The Bad Boys of Bokaro Jail, to illustrate them.

36 on average be at least 10 years my junior so a very large proportion fitting into the definition of “youth”. And many of them cooped up inside for much longer than a month. Further, this was a jail for under trials so what we are actually talking about is a crowd that is “guilty until proven innocent”. To give such men a chance to bounce back outside, to have a shot at life – the best thing we can do is give them something positive to do. Teach them a skill. Give them a vocation. Or at least the means to earn a respectable living.

“One assumes that a listed company would have all the basic hygiene factors in place. Reported numbers would be true. Audited results would be factual. The fact is even listed Indian companies, and the results they publish, can’t be trusted.” (Excerpt page 66) “Then there is the ward which is dedicated to noble ideas and terrible implementation. I call it the ‘Broken promises’ or the ‘Lost opportunity’ ward. It is a ward in which nobody lives. But the ward is full of weaving equipment— not a little but a lot. And we are not just talking Gandhi charkhas, but much more complex (and expensive) equipment— worth tens of lakhs of rupees. When I tried to find out the story nobody seems very certain. Even Nageshwar—who has been in this jail for over seven years—does not remember a time when the things were actually used in any kind of productive manner, but the inmates said it is cleaned and dusted and shown off during all visits and official inspections etc. It is one of the government schemes on which so much money is spent, but which are doomed to failure because of the lack of actual implementation. The ‘Broken promises’ ward stays locked and hardly anybody ever goes in or out. The equipment has collected a significant layer of dust. And 250lus capable but directionless, idle men who could learn a new vocation and effectively produce something of value—and in the process feel worth something more themselves—kill their

days hanging around making small talk and eating khaini all day.” 3. Any industrial town – like Bokaro steel city – is similar to big cities like Delhi Maybe I am naive. I thought that the world was progressing at an equal rate all across the nation. However, in a place like Bokaro (the people inside Bokaro jail are pretty representative of small-town India in general) the attitudes and mindsets are very different from those in, say, corporate India. Attitudes towards women are downright scary. When I was imprisoned, the Delhi gang-rape case was very much in the news. And surprisingly, most men in the jails, and also the local press, did not quite get what the big deal was. Many actually sympathized with the rapists. About a third of the inmates in the prison were in for dowry related cases, including dowry deaths. (Excerptpage 165-166) “Jail does have a culture of its own, and I don’t think it is very particularly a criminal culture. I think it is simply a Jharkhand small-town culture. Lowermiddle class in its flavour. There is still a significant distance that generations maintain here. For example, there are many things that sons do not do before their elders. It is true for me as well but in a much smaller way. But I think it is much stronger and more pronounced here. Pappu Ansari and his two brothers live in Ward 2 while his father and two uncles live in Ward 10 (the Roja ward). He said that he felt that everyone is more comfortable this way. It is not that his brothers do anything blasphemous like drinking. They are all teetotallers. But they just feel that they have to watch themselves a lot less, and are also able to smoke more comfortably if they live in a different ward. Another aspect which I initially found shocking, but have increasingly come to accept as ‘normal’ is the difference in the attitude toward women and their rights. People here believe that women are very clearly and unequivocally inferior to men, and should be kept in their lace. Even to the gang-rape story the response has not been as black-and-white as in my ‘CNN-IBN’ bubble. So when the Madhya Pradesh industry minister Kailash Vijayvargiya talks about a ‘Lakshman rekha that women should not cross’, most men nod their head in agreement. There is a case where a man had been arrested

4. Even listed Indian companies, and the results they publish, can’t be trusted. One of the reasons I chose to join Everonn - despite its recent run of interesting events - was because it is a listed firm. I just assumed that a listed company would have all the basic hygiene factors in place. Reported numbers would be true. Audited results would be factual. However, once I joined I realized that the company was only skeletons and no cupboard. I

should have bailed that very instant. Even though new management and money had walked in the door, there wasn’t an upright spine left in the company. Actually I should’ve seen the red flag even before I joined. I swear never again to work for any company whose name rhymes with Enron. (Excerpt Page 173-174) “From a neutral and purely leadership perspective, I think this is a huge opportunity lost for Everonn. The company is currently emerging from a crisis, and has a workforce which is very demotivated and uncertain about the future. The Gems group of Dubai had taken control a little over a year back. However, in over one year of ownership it had not been able to bring about any noticeable change to operations and business on the ground. A lot of promises had been made. But not enough were kept, and too many broken. The company continued in a state of limbo of sorts, and with the continued uncertainty many good people left. Then, to effect a serious change, the Gems group brought on board a senior advisor, who in turn brought me in to join the senior team in October. And in December I was arrested. The two critical things for Everonn to manage at this point were: 1. How quickly the employee in prison is released 2. How the business interest of Everonn in Bokaro is handled The company had the opportunity to demonstrate intent, confidence and a new, changed leadership. Positive, effective handling of the situation would have spoken more loudly to the employees than any words ever could. However, Everonn faltered on both the above fronts. Not only has Everonn been unable to secure a prompt release for me, it has also not effectively handled the situation on the ground at Bokaro. The centre will eventually shut down if things continue at this rate. Since the company did not execute, this incident will also fall into a familiar pattern of lost battles and broken promises that the employees are used to seeing. This especially undermines the new management, and leaves it with no credibility. Everonn is like a losing fighter in a boxing match. There was a brief opportunity to land a flurry of blows on the opponent and get back in the reckoning. Instead, the fighter let his guard down, and took a further beating. Pity.”

THINKERS

along with a bunch of other men as the rape accused. However, this one guy is supposed to be the victim’s boyfriend and said he is wrongly accused as he had never raped her. The victim had evidently come to meet her boyfriend in jail a few times on her ‘scooty’—and it was seen as extremely inappropriate behaviour by everyone in the jail. On top of that she had assured him that she would arrange for his release! Such audacity in a woman!! It is also interesting to see the difference in the English and the Hindi newspapers—especially the more local Hindi dailies. The indignation that an English daily paper express about someone making a chauvinistic statement— say about the gang-rape case—may simply be a factual statement being quoted without judgement in the Hindi one. Clearly, the role of the newspapers here is not as much to change opinions as to reinforce existing opinions. Makes it that much easier to sell. There is a whole cycle of interests that drive the information and opinion cycles. The newspapers have clearly defined audiences, and no paper wants to be seen as preaching, so everyone tries to toe the line and stay well within the mainstream of local opinion to be able to sell the most number. That doesn’t matter if you sell soap, but as a journalistic entity, competition of this nature actually is a bad thing—it helps stick with old ways of thinking. It is actually a negative force, because while every newspaper provides the same information, the press is afraid to have a strong pinion because of the fear that too many people may disagree (and consequently, move to a less forward thinking newspaper). So all Hindi dailies stick with the mainstream opinion of their audience, which is safe. This is unfortunate as there is very strong power and credibility that the written word carries. But most people stay happy in their closed loop of selfaffirming sources of information and opinions.”

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The role of corporates in social progress and nation building By Sanjiv Mehta CEO and Managing Director, Hindustan Unilever Limited at the Porter Prize ceremony.

41 “It is time for business to be givers to and not takers from the system. There is huge opportunity for businesses that embrace this new model—a model of responsible capitalism.” worrying is that less than 20% believe that the leaders can be entrusted to tell the truth and make difficult decisions. Today long term growth of the business is at risk. We are consuming resources at a rate of 1.5 times of the earth’s ability to replenish. If the developing and emerging world were to consume at a rate equivalent to the developed world, it would be tantamount to consuming resources at 3.5 times world ability to replenish. But at the same time we cannot deny billions of people everyday benefits of nutrition, hygiene, and the improved quality of life. There is nothing that we could do or should do to limit the aspirations for the large mass of people who are coming out of the poverty trap and getting into the consumption cycle. With 1 billion people going to bed hungry every day, with 2.5 billion people not having access to safe drinking water or sanitation, 2 million children under 5 dying every year due to preventable diseases, our work is cut out. The vision has to be to create a future which improves the quality of life without increasing the environmental impact. It is time for business to be givers to and not takers from the system. There is huge opportunity for businesses that embrace this new model—a model of responsible capitalism. But it needs a very different approach and goes well beyond what we popularly call CSR. It’s about a license to lead, a business model where business sees itself as a part of society not separate from it and the needs of citizens and community carry the same weight as those of the shareholders. Example of this approach is a program of empowering rural women which we call Shakti, which is a Sanskrit word meaning power or empowerment. Way back in 2000 we realized that in many parts of rural India which were not easily accessible, large number of people did not have access to basic consumer products like toilet soaps, fabric detergents and tea. However there was some good work done by some advanced NGOs in organizing these women into self help groups. Banks were providing micro

THINKERS

I am going to talk about the role of corporates in social progress and nation building. This in many ways is close to what Porter had envisaged in his concept of creating shared value, where successful business corporations will work towards societal improvement with a focus equal to the focus on economic value creation. There are many similar principles on which Unilever was founded. The story begins in Victorian England in the late 19th century when one of the founders William Hasket Lever set out to reduce the drudgery of washing with a bar of humble soap. He set out to create not only a great business which has stood the test of time but a company with a very strong social mission. He voiced it through very eloquent words, saying, “I believe nothing can be greater than a business however small it may be that is governed by consciousness, and nothing can be meaner or more petty than a business however large governed without brotherhood and honesty. Closer home in India, Jamshed Ji Tata set up the Tata business on strong foundation of ethics and with a spirit of contributing to society. His vision of constructive change led Mr. Tata to embark on a journey of growth that in many ways paved the way for industrialization in our country. The fact is capitalism has undoubtedly brought about unprecedented growth and prosperity in the world. I firmly believe that it is the best way to allocate resources. However, many businesses perpetuated a flawed and a dysfunctional economic system fuelled by short term-ism leading to disparity between rich and poor, a disregard of natural capital which increasingly pits people against the planet. This inequitable and unsustainable growth has led to a situation of an unprecedented disequilibrium. Just look at a situation where a billion poor people in the world account for the 1% consumption of the world and the top 1 billion people account for 70% of the total consumption in the world. As per an Oxfam report, 85% of the richest people on the planet have accumulated wealth which is equivalent to the wealth of the bottom three and a half billion people. Just look at the 85% people versus 3.5 billion people. These numbers are stark and very worrisome. We have lost sight of the simple principle that a successful business has to be a responsible business. Business is today at a cross roads where the trust and business ethics of its leaders is at its lowest ebb. According to Edelement business survey only 58% of the people trust business to do what is right and more

42 “In 2010, Unilever launched the Unilever sustainable living plan. This plan has a vision of doubling growth while reducing our environmental impact, and positively improving our societal impact.” credit to help them tide over their day to day needs. But there was a missing link which was they did not have income generation opportunities. That’s where the Shakti program comes in, by building on self help groups, by building on micro lending facility, we help create women entrepreneurs who would distribute and market our products in villages which were not accessible by traditional distribution means. We call these micro entrepreneurs Shakti Ammas—all at once we broke the vicious cycle of poverty and created a virtuous cycle of growth. Today our Shakti Ammas are self reliant, empowered and have an important role to play in the community. The program that began in one village in AP today encompasses 165000 villages and we have provided income generation opportunities and created micro entrepreneurs out of 65000 women and 50,000 shaktimans—the male members of the Shakti households. In 2010, Unilever launched the “Unilever sustainable living plan”. This plan has a vision of doubling growth while reducing our environmental impact, and positively improving our societal impact. It had 3 big goals/pillars. One was to improve health and well being of billion people. The second was to half the environmental impact of our products across the lifecycle while doubling business. The third was to source 100% of our agriculture produce from sustainable sources and in the process create livelihoods for 000’s. These goals are underpinned by time bound targets. We are every day seeing the benefits of USLP in India and abroad. It has helped us to save costs, reduce the risk and drive innovation and growth. The USLP in many ways strengthens HUL’s business foundations of doing well by doing good. Since our inception in 1933 we have lived by a single belief— what is good for India is good for HUL. This belief continues and will continue to be a guiding principle in everything that we do now and in the future.

Nearly 16% of the world population lives in India but we have only 4 % of the world water and as an FMCG whether it’s the ring in the cup of tea , taking a shower, brushing teeth, washing clothes, every interaction of the consumer with our brands entails consumption of water. So, we thought of what needs to be done to address this problem. We set up the HUL foundation in 2015 and by working both on the demand side and the supply side we would be able to conserve 100 billion liters of water. Indeed the biggest force that would be a factor in our brand leaving a positive social impact. As India’s largest FMCG company we have the privilege to be part of the lives of millions of Indians. 800 million Indians use one or more of our brands. It is a great opportunity for us to make meaningful difference to their lives. We believe every brand should serve a purpose in the life of a person who buys it. This belief is on the forefront of how we build purpose driven brands and continue to leverage them to address the social problem. The hand washing program conducted by lifebuoy in India is a great example. In India, a child dies of diarrhea and pneumonia every 15 seconds which is 2 million deaths. In India over 6 lakh children die over the age of 5 each year. The simple act of washing hands with soap can save millions of lives. And this was the mission with which lifebuoy embarked on its social program. We have reached out to 14 million children across the length and breadth of the country. Last year we did an experiment in a small village in a remote part of MP. By inculcating the habit of washing hands with soap we were able to reduce the incidence of diarrhea by 85%. Each of these initiatives are tangible proof that business can indeed be a force for good however ultimately the test whether we can develop a more responsible form of capitalism will rest on our leadership. We need leaders who not only will build the organizational capabilities to win in the market place but also instill the values to build a sustainable and responsible business model. These are the leaders who would recognize the non negotiable in business and focus on building organizational character which is absolutely essential for success and survival. The need for responsible capitalism is not new. People like William Lever and Jamshedji Tata did it in their own individual ways. It is absolutely clear that the current system would have to change. The ways in which we generate and distribute wealth will have

43 partnership. So that we are not only able to grow the business in the long term but also able to meet the needs and aspirations of the communities that we serve. This will help business regain the social trust and also contribute to nation building. I would like to end with a quote from Victor Frank’s book on Holocaust survivors Man’s Search for Meaning. He said, “The Statue of Liberty on East Coast should be supplemented by Statue of Responsibility on the West Coast.”

THINKERS

to change. The way we accommodate growth and use our resources will have to change. We are at a tipping point where the cost of an action started to accede the cost of inaction. The need to act now is not just a moral obligation. There is also an increasingly clear business imperative. More than ever we have to be lead than rejected. It is time we renew our social contract but more importantly shape the social contract moving form a value based transaction to a value based

Platform Disruption

By Sangeet Paul Choudary Startups are leveraging large ecosystems to disrupt long-standing incumbents. They have been able to do so, systemically, by morphing from the pipe model to the platform model.

From Pipes to Platforms We’ve been living in a world where value creation and distribution flowed linearly. Firms would assemble and deliver products and services to a market of consumers. Producers and consumers held very distinct roles. Value was created upstream and delivered downstream, much like water flowing through a pipe. Our factories work like pipes, running supply chains to assemble products and send them out via distribution channels. Traditional media has worked like a pipe spewing content to an audience. Increasingly, market upstarts are challenging this linear flow of value. Over the last two decades, we’ve seen entire industries being transformed as startups grow rapidly, within a few years, to replace incumbents. We are in the midst of a tectonic shift in business design, powered by the internet and a host of technologies that help us leverage this connectivity. Business leaders, today, are building platforms that enable diverse participants to connect and interact with each other. A host of technologies ranging from cheaper publishing tools and mobile connectivity to wearables and 3D printers are democratizing access to the tools of production. Anyone can be a producer. Networked platforms aid the creation of large open ecosystems, by connecting these new producers to consumers. Facebook, Amazon, Apple, Uber, Airbnb, YouTube and Alibaba have all built massive multi-billion

“Facebook, Amazon, Apple, Uber, Airbnb, YouTube and Alibaba have all built massive multi-billion dollar global businesses by building networked platforms that leverage an ecosystem of external participants to create value.” dollar global businesses by building networked platforms that leverage an ecosystem of external participants to create value. It does so in three ways. The platform creates pull to attract producers and consumers. It provides a plug-and-play infrastructure that enables them to connect and interact with each other. Finally, it leverages data to connect the most relevant producers and their products or services with consumers. The disruption of industries over the past two decades yields three narratives repeatedly played out across industries. Disruption 1.0: The Efficient Pipe The first wave of internet-enabled disruption saw an efficient pipe disrupting an inefficient one. Most of the applications of the world wide web during the 1990s involved the creation of a highly efficient pipe business. Business still flowed linearly, but it benefited from near-zero marginal costs of distribution, which allowed them to target and serve large markets with lower investment. As a result, newspapers were rapidly disrupted because of the internet’s ability to deliver news globally for free. Amazon’s initial rise as an ecommerce store eventually led to Borders’ fall, as the latter failed to compete with the better distribution economics of Amazon. Netflix followed a similar playbook to beat Blockbuster. These companies relied on the internet’s superior distribution economics and leveraged data to serve their customers more efficiently. By building an efficient pipe with better scale, Amazon, Netflix and online news companies successfully disrupted their traditional offline counterparts. Disruption 2.0: Pipes eating Platforms Over the last decade, we have seen the rise of a second wave of disruption. Networked platforms have redesigned value creation. Organization boundaries are being redefined as small companies

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Alibaba pulled off a spectacular IPO in September last year and continues to serve as the backbone for commerce in China. Once dismissed by the hotel industry, Airbnb has rapidly grown to enable more bookings for accommodation than large global hotel chains, and is valued in excess of $10 billion. Meanwhile, Elance-oDesk is evolving from a global freelancer marketplace to an infrastructure that lets anyone run an entire organization on the cloud. Nokia lost 90% of its market value in less than a decade, even as Apple grew to be the world’s most valuable company during the same period. And Amazon continues to strengthen its stranglehold on the publishing market, much to the chagrin of traditional book publishers. We often think of these as examples of the digital disrupting the physical, the offline trumping the online. But there’s a much larger shift in business models afoot, that is transforming the way business and markets are organized.

46 “Both consumers and producers benefit from a new form of efficiency on platforms, especially in markets that have been traditionally intermediated by nonscalable, inefficient agents.” leverage external ecosystems, instead of employees, to create value. Networked platforms scale rapidly in their ability to create value and coalesce an open ecosystem, as evidenced by the rapid rise of Airbnb, Uber, Twitter and other platforms over the last decade. Minimal marginal costs of production and distribution and network effects powered by positive feedback are two key factors that have enabled this rapid scaling. Apple and Android leveraged an ecosystem of developers on their app stores, to disrupt Nokia and Blackberry, that continued to work on a pipe model, sourcing and vetting the apps that were preloaded into handsets. Airbnb has built an alternate global market for travelers accommodation without investing in building or leasing a single room. This has led to its rapid rise as a threat to traditional hotels, which are plagued by higher marginal costs of expansion and servicing, and do not benefit from network effects. Amazon’s marketplace scales with the warehouse distributed across its partner merchants. Traditional incumbents like Target and WalMart find it difficult to adequately compete against this. Carpooling and ridesharing platforms, like BlaBlaCar, allow consumers to share rides with each other for a small fee. These platforms are posing significant threats, not just to public transportation, but also to the car manufacturing industry. Three patterns in platform disruption Disruption re-intermediates markets and enables better economics for all market participants. Networked platforms often rework the economics of participation such that consumers or producers, or both, benefit from a new form of efficiency. Apple’s developer ecosystem offers better financial terms to a developer as compared to Nokia and AT&T’s traditional terms. Amazon’s Kindle Publishing platform allows authors to retain 70% of the royalties, a huge improvement over traditional publishing terms. Both consumers and producers benefit from a new form of efficiency on platforms, especially in

markets that have been traditionally intermediated by non-scalable, inefficient agents. Networked platforms re-intermediate such markets in a more scalable and efficient manner, relying on scalable algorithms and social feedback. Platforms also uncover new sources of supply. Wikipedia created a new base of volunteers interested in organizing the world’s knowledge. Airbnb uncovers a new source of accommodation by allowing anyone to run a B&B. YouTube allows anyone to run a media house and Ebay allows anyone to run a store. Platforms do not merely reorganize value the way traditional intermediaries would. By allowing fair market access and relying on democratized tools of production, platforms unlock new sources of value. The proliferation of production technologies like 3D printing is likely to see platforms changing the world of manufacturing in the days ahead. Finally, platforms bring efficiency to unorganized markets. RedBus, a platform in India, aggregates the unorganized market of bus operators onto a single platform leading to lower search costs for consumers. OpenTable aggregates restaurants, with information on real-time availability, in the US. Leveraging social feedback, these platforms also create a layer of reputation for producers, lowering the search costs for consumers and aiding efficient decision-making. Disruption 3.0: Pipes start behaving like Platforms Finally, we are now seeing a third wave of disruption. Traditional incumbents are waking up to disruption and leveraging the same principles to scale like platform startups. Pipes have traditionally scaled in one of two ways. They would either integrate vertically to own more of the flow through the pipe or they would pursue horizontal integration and constantly widen the pipe to push more value through it. Many media as well as manufacturing companies have relied on vertical integration while some of the biggest FMCG players today have mastered horizontal integration. Apple followed a different mechanism of integration. Apple’s products and services are integrated to each other over the cloud, using data. A new form of scale makes ownership of multiple Apple products more useful, because of their ability to interact with each other. Nike’s FuelBand, connected shoes and mobile apps also constantly interact with each other. Across its products and services, Nike is increasingly building out an ecosystem of users who

Conclusion In a networked world, we are likely to see more industries getting disrupted. Industries that are information-intensive are most likely to get disrupted. Banking, education and healthcare are highly information-intensive but have withstood disruption thus far because of favorable regulation, and because the costs of participating in the wrong interaction are

often too high. However, with the rise of platforms like Lending Club, Udemy and Jawbone, we are seeing early signs of disruption in these industries as well. The repeated ability of platforms to disrupt pipes is made possible because of lower transaction costs. The internet and a host of associated production and consumption technologies have drastically reduced transaction costs. This allows businesses to leverage external ecosystems of producers and consumers that co-create value and exchange value efficiently. To fight disruption, you need to closely evaluate your business model. Look for transaction costs associated with a norm today and think of how you can eliminate those transaction costs. Using platforms, businesses can rethink transaction costs and leverage external ecosystems towards more scalable business models.

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engage each other and benefit from network effects. In a different industry, GE is integrating its machines using - what it calls - the industrial internet to ensure that machines interact with each other, learn from each other and provide better and more reliable service. Across the world, pipes are trying to disrupt themselves by thinking like platforms.

In Conversation with Raghavendra Rau

By Malvika Chandan

So they fall under the ambit of NBFC? Some of these things are just fascinating. For instance, even an established firm in Germany was looking to

the Cambridge Centre. What happened was in 1997 there was the South East Asian crisis, markets crashed. Unfortunately lot of banks in Germany were exposed to that crisis. So, they basically cut back on their lending even in Germany. These German firms had nothing to do with the South East Asian firms. They were upset that their funding is being cut off. One of them in particularly said that they were tired of dealing with banks. They’ve given me money when times are good and they don’t give me money when times are bad. He saw an ad in the newspaper which said banks are lending money at 5% and he could get it there at 7%.

“A typical bank has to be extremely forward thinking to lend an entrepreneur money as he has no collateral and nothing to put on the table.” The regulators came down and said you can’t do that as you are not a bank, but you can issue bonds. So, for the last 15 years this company has been directly issuing bonds to local townspeople without them having to go through a bank. At the annual beer festival in that town you can buy a beer and a bond at the same time. You could go up to a stall and buy both and they would pay back Euros 1000 over years. Why would you lend money to a company like this? You know the company, you can see the guy there, he goes to the same restaurants as you do, and his children go to the same school as your children. That’s localised lending and it is now spreading. There are now about 50 companies who have started doing like that. It’s completely outside the formal financial market. Alternative finance does not involve a formal intermediary and can change capitalism and the classic idea of an entrepreneur going to a bank to get a loan. What about the risk, lending to entrepreneurs with great ideas, but no collaterals or product, which is why banks shy away from giving them loans? Nobody knows the answer to that. It is the first time something like this is happening. That’s why we have the Centre. We have collected data from 64 crowd sourcing platforms and have individual loan level data—who applied for and got loans, who are their investors, what their profiles look like, so, then we can find out what makes one group of entrepreneurs more

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How does alternative finance work? What does this channel offer that banks do not? How entrenched is it in the UK? Alternate finance studies anything which has to do with non banking finance. The commercial banks, investment banks are formal financial intermediaries so they are extremely well regulated and the government has given instructions on how much capital they need to keep on hand, how much they can lend, what proportion of their total capital they can keep and stuff like that. Now the problem with that is it puts strictures on the bank themselves. For example, a bank would not lend necessarily to an entrepreneur with a brand new product idea who needs funds to develop it. A typical bank has to be extremely forward thinking to lend an entrepreneur the money as he has no collateral and nothing to put on the table. Having a formal financial intermediary setup increases cash flow into already established companies and capital is diverted away from new growth opportunities, new growth sectors of the economy with not much collateral but just ideas. Now for the economy to grow we need the 2nd sector – the first sector is already established. There has to be a bridge between one and the other. In the old days, if I were an entrepreneur and came to you to get money to launch a new business, and you have never met me before today, why would you lend me money? I could say I promise to give you back your money and I would say that even if I don’t have the intention to return it. So, the bank in those circumstances act as an intermediary – the bank sits there and says that I certify that I am investigating his records and look at his credit records and bank balance and find out he is good credit risk. But you can’t do that, you don’t have time and technology and the monitoring ability to do that. So, that’s why banks were very successful in the past. But the cost of that monitoring technology has come down dramatically these days. Now-a-days everything is on an app. The new crowd sourcing and peer lending platforms did not exist more than 10-15 years ago because the technology was not there. Now If I am an entrepreneur and I have an idea, I list my project on a platform and compete with a whole bunch of other people. If I want money to flow towards me I have to provide guarantees and certificates that I am not going to steal your money, as an investor. So, the whole area is developing outside the entire financial market.

50 “Alternative finance does not involve a formal intermediary and can change capitalism and the classic idea of an entrepreneur going to a bank to get a loan.” successful than another group of entrepreneurs and maybe draw lessons from that. We are watching this as the market evolves. How do you link academics to actual commercial activity, specifically in this area of innovation and financing? What are some of the challenges and the opportunities? We have one advantage at Cambridge. It is one of the largest entrepreneurial clusters in the world after Silicon Valley in the US. It’s called Silicon Fen. Fen means a marsh and Cambridge used to be settled in a marsh. It has about 700 entrepreneurial firms which have opened there in the last 30 years. The reason it works is because the University gives a strong support to the faculty who decide to set up their own ventures. How is it for entrepreneurs to be in the University town and have the ecosystem and support? The key has to be that entrepreneurs should be willing to take risks. Also, the entrepreneurs, professors in this case, need to be sure that the idea won’t get stolen. The University has an incentive to say – that’s not your idea – you developed it in University time, it is our idea. But if that’s the case then why should I develop an idea. The University benefits as it take the major chunk of the equity if the company goes public. But it gives full copyright to the entrepreneur behind the idea. You’ve made an interesting comment on your website regarding “markets not being efficient in the long or the short run”. What’s your view in terms of its functioning and the time it takes to actually process and reflect developments? The basic idea of market efficiency simply says, new information is the only thing that reflects in prices. In other words, when new information arrives the market prices instantly incorporates that. For example, a company announces a stock issue today but carries it one month later. If the market is really efficient all the stock reactions would happen at the time of

announcement, nothing should happen at the time of execution. What we find typically in cases of initial public offerings, the price jumps on the first day but goes down in the long term, so you are worse off by investing in a company that issued a new batch of shares than 5 years after the initial public offering. This states that the price was too high at the IPO and the investors have not realized that up to 5 years later. That’s the example of market inefficiency that I am talking about. What the way around it? That’s the paradox. It again goes back to economics of information. It’s the same idea with entrepreneurs. The entrepreneur believes that his idea is a good idea. He has to figure out a way to convince investors that it’s a good idea. Those are called corporate governance mechanisms, when the entrepreneur says that I am convinced it’s a good idea and here’s how I prove it. One way is to put your own skin in the game. If I really believe my idea is good then I would put a bigger cheque in it. If I am convinced of it and pay my own life savings into it, it might be easy to convince others it is a good idea. You do not need a bank to certify it if I show you that I have invested all my savings in it. You have also done some interesting work in the area of risk taking and how to assess an individual’s risk-taking ability. What we are trying to do is look at why some individuals specifically CEOs take more risk than others. The idea we had was that the stuff that is happening when you are growing up affects the way your brain develops. What we found was when you are exposed to large levels of low level trauma when you are growing up, say natural disasters but none of the disasters killed anybody so, when you eventually become a CEO, risk taking is not a big deal for you. You can handle risk. You don’t even think about it because your brain developed differently. On the other hand if you had a major disaster happening, and say your best friend was killed in school because of a tornado, you find it stressful and consider risk to be bad and you don’t want to go through this again. In this case, when you become a CEO, your firm ends up holding less leverage more cash, you make fewer acquisitions. On the other hand if you have lots of low level trauma and nothing major happened, you end up doing exactly the opposite. You end up taking much more leverage, less cash and more acquisitions and stock is higher. So, risk is no big deal.

51 THINKERS

R YEA

& COUNTING...

The country, along with Australia and New Zealand, among others, is early to the Big Data party, says a study by IBM Institute for Business Value & Sa誰d Business School

THINK BUSINESS. THINK BWIBUSINESSWORLD

Business as a Force for Good is Just Good Business By Paul Barnett

In citing the Barclayâ&#x20AC;&#x2122;s example, Paul Barnett brings to life the belief that a strong value system is the only means to a long-term sustainable business model.

53 financial ‘products’. The dramatic consequences in terms of higher risks have been the source of our great suffering in recent years. It was in this context, and having been overtaken by National Westminster Bank in terms of profitability, the Barclays board responded by joining the race for growth. They bought Wedd Durlacher Mardawrit and de Zoet v Bevan in a strategy to become an integrated investment bank, Barclays de Zoete Wedd (BZW). The greatest problem resulting from this was one of cultural misalignment – the commercial banker and

“Most new businesses are founded by entrepreneurs who have visions rooted in a higher purpose and many have strong values. Losing sight of them is something that seems to happen in the middle and mature years of a company.” the investment banker being very different animals. It provides ample evidence of the truth apparently spoken by management guru Peter Drucker, “Culture eats strategy for breakfast”. The need for scale as a prerequisite for success in an investment bank was recognised within Barclays by the CEO in 1997, Martin Taylor. He also recognised that Barclays lacked sufficient scale and recommended to the board that they exit investment banking. His proposal was rejected. In the years that followed the power of the investment bank traders increased, infecting the business with a virus-like transactional culture of strong competition, individualism and greed – typified by repeatedly expressed public concerns with the pay of Bob Diamond, now former Group Chief Executive of Barclays Plc. A series of scandals, from the LIBOR Scandal to the mis-selling of payment protection insurance, has been blamed on this culture on several occasions. Perhaps the most high profile being the 244 page independent report into Barclays’ business practices by the City of London lawyer Anthony Salz. He suggested, “Significant failings developed in the organisation as it grew. The absence of a common purpose or common set of values has led to conduct problems, reputational damage and a loss of public trust”. Talk about values and value statements are both

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Being value-driven gives lasting competitive advantage where all other sources are transient, says Rita McGrath Columbia Business School professor and author of The End of Competitive Advantage. Examination of companies that survive many decades, or even centuries, indicates that this is a universal truth. In just about every country in the world, examples can be found: Johnson & Johnson (US), Doosan (Korea), Tata (India), Natura (Brazil), Unilever (UK). They were established by leaders with strong values and a purpose higher than just meeting quarterly earnings targets or even profit. The examples should remind owners “to not overlook the power of aligning personal needs with values and culture to enhance performance”. The examples of similar companies that have lost their way and suffered greatly, or failed completely, should make all business leaders take note. In both cases the numbers are too numerous to list. This is hardly surprising since most new businesses are founded by entrepreneurs who have a vison that is rooted in some higher purpose, and many have strong values. Losing sight of them is something that seems to happen in the middle and mature years of a company. In this article I want to talk about one company that will be 325 years old next year. Over the years, like many of its other values-driven company peers, it made mistakes, but it was able to re-focus and renew when it needed to, and was guided by its values when it did so. More recently it has suffered a major catastrophe, but a new CEO is again focusing on values in a rescue attempt. I am talking about Barclays. The founders of Barclays were Quakers who, back in the 17th century, thrived on a reputation for integrity and trust. Like so many cases of companies that have lost sight of their values, their crisis was sparked by industry disruption leading to the possibility of great gains for some and the demise of others. Rapid growth and scale, often through mergers and acquisitions, is nearly always seen as the way to win. A turning point for Barclays, and many others in the banking sector, was the Big Bang – large scale market de-regulation which began in 1985-6 and peaked in the 1990’s with the end of the Glass-Steagall Act which had prevented banks being both commercial banks and investment banks. The separation was ended, giving rise to the creation of mega banks. The battle for scale raged and competition was fierce. The loosening of rules also led to the loosening of lending criteria and the introduction of more complex

54 “Banks now have safer balance sheets, better risk management, and improved governance and supervision. But the culture of short-termism that permeates the industry can’t be fixed solely by regulatory reform and harsh words. It’s got to be rooted in people’s behaviour.” likely to provoke cynical responses. There is a good reason for this. Many are meaningless rhetoric at best and poor attempts at manipulation and spin at worst. Particularly when the behaviours of leaders contradict them. The term values is also somewhat abstract and emotive. It is for these reasons that I talk of the strategic importance of reputation so much. People intuitively understand the importance of reputation from experiences in their own daily lives. This makes it key to an exploration of values, because talk of reputation quickly leads to conversations about values in a more constructive context. So far I have used the Barclays experience to explore what can go wrong when values are forgotten and culture drifts. I have also said that in the past re-engaging with core values got the firm back on track after a problem. I am pleased to say that the current CEO Antony Jenkins is trying to get Barclays through the current crisis in a similar way. I now want to explore with you what that means in his words. Jenkins gave a speech some time back to the Carnegie Council for Ethics in International Affairs on “Driving Competitive Advantage through ValuesBased Leadership”. He informed the audience that he had joined the company in 2006 when the stock price was about £6. It peaked at about £8 pre-crisis and fell to 47p post crisis. Of this he said, “So if you ever need an example of why doing the right thing is also financially productive and constructive, that’s the example”. By “doing the right thing” he was referring to his long-term belief that, “in the long term valuesdriven leadership will drive competitive advantage”. He added, ““You don’t get to be 324 years old

without having to deal with the ups and downs of technological change, political upheaval, economic crises, and so on. You can only survive when you have strong values at its core”. Commenting on recent history he said, “banks were too aggressive, they were too self-serving and too short-term-focused. I have seen this in my own career of 30 years within the banking industry. Now, post the crisis a lot has changed for the better. Banks now have safer balance sheets, better risk management, and improved governance and supervision. But the culture of short-termism that permeates the industry can’t be fixed solely by regulatory reform and harsh words. It’s got to be rooted in people’s behaviour”. He offered the view that, “The real cure for short-term thinking lies in changing the way that people think and behave. There can be no choice between doing well financially and behaving responsibly in business. The last half-dozen years make it obvious that you cannot have long-term success without behaving responsibly. This has to be integral to how you operate a company”. These comments link to others he made in his closing remarks, “Now, let me finish these remarks by saying that none of this is about being soft or fluffy, about fulfilling a moral obligation. There are elements, clearly, of morality in what I have been talking about. But for me it’s as much about winning—winning in the long term for our customers and clients, because they can trust us; for society, because society can trust us; for our shareholders, because they can count on us for long-term, sustainable returns because of the way we run the business”. Referring to the time he thinks it will take to bring about change he said, “We have to recognize that deep-rooted cultural change of the type I’m talking about at Barclays will take time—in my view, somewhere between five and ten years”. On leadership and embedding values in the culture he said, “It’s the responsibility of leaders to set the benchmark for how people are expected to behave and hold them to account against this benchmark”, adding, “I often think that ethics in my own rather simple definition is about doing the right thing in the right way. That’s what leaders have to do if they are to drive the culture inside their organizations”. On dealing with cynics he said, ““inevitably, we have our cynics and sceptics, we have our critics” and, “They have called me “Saint Antony” in the media in the UK because they think that I am hypocritically

55 in time. There is no greater trust in the commercial sense than that. So if you have a strong level of trust within the organization, then you are likely to win more business from your customers and clients. You can see that driving revenue. But there is also a sense in which an organization that has to solve a far more complex objective than just maximizing short-term profit, has to be a more capable organization”. On the basis of his speech I see Antony Jenkins as a corporate idealist. This is a term I came across recently having read The Evolution of a Corporate Idealist by Christine Bader. My understanding is that corporate idealists are individuals who believe that business is the one institution that has the potential to solve the world’s problems more effectively than any other, and that doing so is just good business. If we want business to be a force for good, in a way that is also good for business, we need to spark a revolution. Or at least a movement, by supporting the Corporate Idealists.

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clothing myself in these values as a way to distract attention from what’s going on at Barclays”. But he says, “I recognize that what matters is not public commitment to change but, rather, demonstrating change over time and to earn the trust and permission to be believed—and we will do that. But it also falls to leaders to show resolve and stick to their principles in the face of difficult moments, including taking tough short-term decisions for longerterm benefit. This is really the heart of our value of stewardship”. One questioner asked, ““Does ethics raise the value of Barclays stock?” to which the reply was, “I do believe that the decisions that will be taken by an ethical organization will ultimately result in greater value being created and, therefore, a higher value on the organization. Now, why do I think that? Firstly, because all businesses depend on trust, but banking depends on trust more than any other business. You give me your money and you expect me to give it back to you at some point

Initiatives companies

can take towards

creating shared value By Etienne Benet Managing Director, Nestle India Limited at the Porter Prize ceremony.

“Restoration of resources is a priority within our factories and in areas under our control.”

“It is very essential to understand that CSV goes beyond CSR and is not philanthropy.” chain and our village women dairy development program will create awareness about good feeding and breeding practices for cattle and sustainable farming practices benefiting close to 60,000 women dairy farmers. Regarding water, Nestle and in fact the entire food industry requires agricultural raw material, which depend on sufficient, and reliable water availability. Water tables across the world are depleting and India is heavily impacted. We have a long story of leadership of water stewardship through continuous improvement and efficient use of water in our factory operations and programs with farmers. To give you an example we have embarked on a project to replace the water used in milk processing by reusing the water contained in the milk itself. Since milk is made up of 90% water this would lead to a considerable reduction in water extraction. We also provide clean water facilities in village school, sanitation facilities for girl students to encourage attendance of girls in schools and conduct water education programs for students. This is widely appreciated by the local communities. A very important focus area for us is nutrition. Lot of work has been accomplished in this area. About 15 years ago we announced our intention to be the world’s leading nutrition, health and wellness company and since then globally Nestle has invested over 18 billion Swiss franks in new nutrition businessess and initiatives as well as embedding nutrition into our existing businessess. As a company Nestle spends over 1.3 billion Swiss franks on research and development every year. This includes developing 45 products extensively consumed by lower income groups around the world. In North West Africa, for instance, we were selling 100 million fortified boyong servings everyday. In India we sell Masala-e-Magic. It makes iron, iodine and vitamin A available at an affordable price of Rs 4 per pack. One of the biggest concerns that India faces is the burden of malnutrition. As a company that understands food and nutrition we have already set in motion many initatives to create awareness. We also engage with health care professionals and other stakeholders to improve the nutrition status of the community. In summary I would like to emphasize that CSV is based upon pragmatic, sound and long term thinking. It is about creating sustainable shareholder value in a way it enables long term social progress at the same time. We strongly believe in this and ensure that it is part of our business strategy.

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Nestlé’s business philosophy is about creating shared value (CSV). This concept is not new to us. We have a legacy to this since our founder Henri Nestle invented Farine lactee to save the life of a neighbor’s child. From that time it has been embedded in our values and business principles. The principle around creating shared value (CSV) was developed by Harvard professors Mark Kramer and Michael Porter. They are encouraging companies to understand this concept and to adopt it. So, what is creating shared value? CSV is based on the understanding that business and long-term social benefits go hand in hand. The business that thinks long term and follows some business principles creates value for society and shareholders through its activities. This means making specific investments necessary to sustain and expand our business to develop products and distribution system, which help improve lives of consumers and turn our business in a way that it also benefits the communities in which we operate. All the while using resources efficiently and contributing to preserving the environment. It is very essential understand that CSV goes beyond CSR and is not philanthropy. For CSV to be impactful it is essential to determine the areas where shareholders interest and society interest strongly intersect and where value creation can be optimized for both. Each company and business has to analyze its value chain and see where it can create maximum impact. As we know, growth and social change are accelerating the desire of communities to move up the income pyramid. Therefore, 3 issues namely, rural development, conservation of water and environmental resources as well as access to nutrition and food security will be even more important for society. When we analyze our value chain we identify that these 3 areas are very important for us and this is where we can and want to add value. Let me start with rural development. We have consistently invested in developing farmers and our string team of agronomists for providing free training, technical assistance to dairy farmers, coffee farmers and chicory farmers. The example of extensive work to develop the milk economy in Moga is well known. Today we touch around 200,000 farmers out of which 110,000 are only milk farmers. This would mean our extension services would rank amongst the larger ones in any private company. We have special programs for women in supply

In Conversation with Stuart L. Hart

By Amit Kapoor

59 generate opportunities, build capacity, generate livelihoods, make market returns, and leap frog to the future technologically. That’s when I will call the BOP enterprise, green leap. That’s where the big opportunity lies in the next decade. It is relatively easy to start small local enterprises with 0-return on capital. The thing that takes the most creativity is how do you simultaneously converge disruptive leapfrog technologies and inclusive business models that lift the poor and generate market returns at the same time.

“From a business point of view it’s in the business person’s interest to make more and more people less poor because then you can migrate people up the value chain further.” How do you react to people who are in the business of exploiting the poor? It would be a clinically correct statement to say that if your job is to provide aid and there is less and less need for aid, then fewer people are going to work in that space so that there may be perverse incentives built into that system. If you flip it over and look at it from an entrepreneur’s lens then the reverse is true. From a business point of view it’s in the business person’s interest to make more and more people less poor because then you can migrate people up the value chain further. Not only you can expand business opportunity but they also become prospective customers for a broader range of products and some would be considered up-market over time. The only way that happens is to alleviate their income levels. How does capitalism look at its future? There are people who would look at the institutions of capitalism. If we look in to the future 50 years hence, the population growth would have been stabilized and we would be living in a world of stable/ declining population. We would be living within nature’s budget meaning we cannot take the natural capital more than nature generates. And we can’t put more waste back into the system than nature can absorb. There are certain systems/ conditions that suggest that the current model to understand growth cannot continue. Hence I see the capitalistic motivation, which is to

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How do you think the negative air around micro finance can get resolved? Are other financial mechanisms going to evolve for helping new entrepreneurs? Micro-financiers who are promotional in character have now overreached and have created some negative air about them and in some cases have become extractive by charging rates that are not relevant. So, you get a push back on micro finance rates as there would always be players who would abuse the opportunity. But that does not undermine the importance of micro finance overall. It’s enormously important in building the craft businesses of the world. Micro finance is not a vehicle for building the promotional businesses of the future. That requires a different type of financing. India does not have the traditional venture capitalist structure as in the US. The traditional structure of VC in US does not do a good job of funding the kind of BOP sustainable enterprises that we are after. These kinds of enterprises require time on the ground, capacity building, partnering and trust building in order to develop a viable value proposition. The traditional VC model out of California or Boston does not factor in the pioneer gap time. That VC model has a much shorter time clock and many of them have been involved in several ventures. The traditional VC does not have the patience to wait for 3-4 years for creation of a trust based value proposition in business model. So, what we are seeing is the beginning of impact investing and I would say India is the epicenter of impact investing. The impact investing space is now like the Wild West in that it’s the whole spectrum, people who would ideologically think that in order to get the investment we need in social businesses we have to eliminate the capitalistic incentive. We have this whole new innovative financing space where you have financers playing with different models and it is not clear which one of them work the best. In order to promote tomorrow’s sustainable BOP promotional enterprises there has to be market returns that are not going to trap the investment capital you need to create the scale necessary to build the impact. There is not enough philanthropy capital in the world, there is some, to do social businesses, but there isn’t enough to get to the level of investment that we are going to need for the impact or the transformation that we want. I think we have to figure out how we can have the market returns and at the same time lift the poor,

60 “The inclusive business model provides livelihoods; functionality local people did not have before, and is highly profitable all at the same time.” achieve competitive advantage, to search for growth and profit opportunities, actually can be trend to an advantage, which can help us move up toward that more sustainable world looking out 30-40-50 years. We can use the current capitalistic motivation to get to tomorrow’s technology and business models. We have immediate need to transform to more environmental sustainable technology that’s innovation entrepreneurship opportunity. Over the next 2-3-4 decades, if we look at it through right set of glasses the current incentives of capitalist system would lead to a more sustainable world because there is an entrepreneurial opportunity to leap frog to environmentally sustainable technology and to grow by serving the other because that’s really the only place where growth remains. We can continue to grow and sell high end products to rich people and that becomes a more increasing competitive space. In order to be successful purely at the top of the pyramid is really tough but when it comes to the base of the income pyramid that’s still relatively unoccupied space. If it does not happen through entrepreneurship then it would happen through the club of government eventually which is bad for the world if it is just government swinging the club. So, I actually see the entrepreneurial process over the next 20 years as one of the important leverage points to getting the world to say 2040-2050 where we have stabilized human population, where we are living within the natural capital budget. How would governments have to transform themselves to enable the kind of idea that you are saying? The current character of political organizations is not sustainable in my view. We have now had 300 plus nation states as a part of the dominant political organizations and I think the whole concept of nation states may be out, just like the concept of 19th century industrial capitalism. We would probably have to adapt and change in the coming

years. I think the mind of political organization would also have to shift. If you look at what is going on in the world, most of the innovative public policy happening in the government is happening at the local level, i.e. cities/ mayors who are the real political innovators. Innovative thinking is also happening at the global level where problems are trans-boundary that they don’t respect national boundaries. So, we are going to need innovative solutions that require global collaboration. At the other end of the spectrum it is being more embedded in the communities and that is local government who are the mayors that making it happen at the local level on the ground. In some sense nation states are stuck in the middle they really don’t do a good job of either one of those things. What do you think would be the best example of your work that has created a transformation on ground? The entire thing looks like a puzzle where we do not know the pieces of the puzzle. This evidence can be seen in both corporations and entrepreneurial ventures. If I look at HUL - the Shakti program has the elements of the puzzle pieces but not the whole puzzle. For example a Chinese company “Tsinghua Solar” is a very interesting company sprung out of Tsinghua University. They have innovated glass vacuum tube solar heat technology. Most of the solar hot water market today uses flat panel solar - the cost is coming down but still typically beyond the reach of most people. It has created this technology for Jet for making hot water using glass vacuum tubes. So, it’s very inexpensive and sustainable from a materials point of view. It’s basically glass vacuum tubes stuck into a water tank and they heat the water. It’s extremely good at collecting the sun’s energy and heat. There is a notion that green products are for the rich people which is a huge mistake. So they tried to market in the high end markets of Shanghai and Beijing. The product completely failed as those people already had hot water. So, they went out to the towns and the rural areas, outside of the big cities, in central and western China and they discovered enormous demand where people had only periodic access to hot water. They had to adopt the technology and product and create a different business model which included the local people. So, they had to transform the design of the artifact itself and then create

61 space, leap frog and then inherently went global. The inclusive business model provides livelihoods; functionality local people did not have before, and is highly profitable all at the same time. I see this company as offering many of the puzzle pieces for the future of sustainable entrepreneurship and is a leverage point for getting us out of the trap that we are in.

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inclusive financing mechanism of business model that employed local people and sales and service. It took some time but they eventually figured out that this is really the growth engine. Over the last decade this glass vacuum tube solar water hot system has become a billion dollar industry. It has grown from the bottom up and is growing 60% a year just in China. So, the technology started first in the underserved

Learning beyond

perspectives: Towards a

multidynamic sense By Rizio Yohannan Raj

of competence This article highlights the constraints within popular notions on learning and industry and their manifestation, and offers a solution that encompasses multiple intelligences.

63 “Is mastery a specific set of skills, a definite scale of enterprise, or a particular speed of performance?” modernity’s intrinsic potential to find peace with/in itself, too, thus further orienting our thoughts in the direction of finding some resolutions. Our ancestors must have found life in the jungle quite unsettling—wandering in search of food, surviving known and unknown threats, being on the defensive at all times. Their emergence onto the riverbanks must have been triggered by the development of a special consciousness which eventually marked them as homo sapiens sapiens – wise beings. A self-reflexive consciousness made them aware of their own capability to receive and store stimuli in their heads, categorise impressions and process them with their faculty of associative thinking, and respond to life with sustainable planning, rather than impulsively. The arrival of this new mindfulness resulted in an unprecedented human exodus in deliberate quest of a dream land, a space under human control. Human beings had, thus, from their earliest days, opted for an ‘urban’ destiny—the vision of a settled life as different from the unsettlement the jungle offered (Latin urbs evokes settlement and refinement), a space where their plans could be executed and developed. What I wish to bring home to my readers is the integral connection between the said development of reflection and the movement of human beings towards settlement. This connection will, pertinently, reveal to us the circumstances under which human culture came to become a site of warring selfinterests. The distant vision offered by the riverbank settlement, also gave a retrospective insight to humankind: the forest was never completely seen from within; one needed a view point to understand how a setting as complex as the wilds worked. Ironically, it is this steady vantage point of objectivity available to the initial settlers that facilitated the first seminal shift in human response, making us privilege the wave-like mode of reflective thinking rather than the particle-like impulsive reaction upon encountering different stimuli. However, gradually, this path-breaking adoption of perspective revealed itself to be a trap. It radically limited the multi-dynamic potential of human thought, as it exercised itself at a linear, safe and

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This article highlights the constraints within popular notions on learning and industry and their manifestation, and offers a solution that encompasses multiple intelligences. Someone went to a martial arts teacher and said: “I am passionate about studying your martial system. How long will it take me to master it?” The teacher quietly replied: “Ten years.” The aspirant grew impatient at this answer: “But, that is a long time—I want to master this faster than that. I will work very hard; I can practice twelve hours daily, if I have to. How long will it take then?” The teacher thought for a moment and said: “Twenty years.” The Zen story above raises a few questions germane to ‘competence’, and ‘sustainability’ – two seminal terms in the contemporary global discourse on competitiveness. It has become quite common today to view and understand life as a comparative market experience. In this context, how do we understand ‘mastery’ in any field? Do we, or can we, have an absolute tool to measure it in any domain? Is mastery a specific set of skills, a definite scale of enterprise, or a particular speed of performance? Or, is it a combo-pack of all these, and only that? Is there anything beyond the comparisons of skill, speed and scale that makes one a master beyond competition? What characterise/s a master’s competence? Another set of questions concerning sustainability that comes up here is linked to the term ‘hard work’. How do we appreciate hard work vis-à-vis the sustainability of an enterprise? Is hard work and its result/s directly proportionate to each other? Is hard work the time spent in executing a task, or is it the energy one has used in completing an assignment? Is hard work the totality of material resources invested in a project? Can someone who tends to find shortcuts to achieve high success with less work be described as hardworking? Conversely, if the result of one’s industry is short lived, does it devalue the effort advanced? So, what kind of hard work contributes to making and sustaining individual and organisational level competences? These queries, non-linear as they are, may unnerve some of us with their ominous implication: our claims of competence and its sustainability have more fissures than what we have imagined, or accepted. But, our anxiety of fragmentation itself, ironically, may lead us to realise that these questions point to our

64 too comfortable distance from the point of actual participation of the human self in an event. The emergence of perspective marked a turning point in the history of human civilisation, and its goods and bads still continue to rule the world in equal measure. It is astonishing how the same drug leads to renewal of life or death depending on the dosage used. One here notes, parenthetically though, that the grave ills caused by many a linear human perspective indeed betray some tragic cases of thought abuse.

“Our ancestors must have found life in the jungle quite unsettling— wandering in search of food, surviving known and unknown threats, being on the defensive at all times.” Let us return to our Zen story to see the role of perspective in shaping the apparently conflicting ideas of the master and the aspirant about the relationship between ‘mastery’ and ‘hard work’. The aspirant seems to have a perspective of/on ‘mastery’ in the martial art system with respect to a normative understanding of skill, speed and scale, and their interrelations. On close reading, one finds that he is, unwittingly, trying to match up to an amorphous norm of competence. There is a vague projection of ambition regarding the destination, as well as an unhistorical, customary promise of industry. The grand passion here is not presented in any continuity of his actual practice or verifiable past experience. The master evidently is not using the aspirant’s perspective to understand mastery. Why did the former think one required more time to acquire mastery, if one worked harder? Towards answering this puzzle, one needs a radical re-understanding of the term ‘competence’ in relation to the existential individual’s experience on the one hand, and the norms of the society on the other. It is only fitting to begin this quest from a felt need to understand competence in relation to an individual’s distinctiveness. And, it must enable a participant for a transformative experience: to review her individual differences from others in any given

context, and reinvent these as integral features of her distinctiveness, which will in turn help her assess the nature and scope of her hard work. At this multidynamic level of engagement with competence alone would one’s unique aspirations, individuality and growth trajectory be channelled into groundbreaking innovations, resulting in better designing, building, functioning and sustenance of one’s life in a society. This would mean that competence has to be understood beyond the abstract self-referential individual ambition and normative social codes as the aspirant in the story has done. It has to be understood at an honestly experiential level of the participant’s own engagement with his senses as well as in terms of his transformative contribution to the society. And one’s hard work has to be placed, measured, interpreted and conserved within this context of sustaining one’s competence through the passage of time, alterations of space and ramifications of culture. Any industry that links up with anxiety and stress about the desired results would create further distances between the aspirant and his dream of success. And focussing too much on one perspective is limiting, as it is an exclusionary and insecure practice by its very nature and location. The Zen master thus points to a ‘deperspectivised’ learning with his seemingly anachronistic correlation between mastery and hard work. In order to thus associate and interlink the competence of the individual with the continuities of natural and civilisational phenomena, one needs to pass oneself through, what I term, a prismatic training for life appreciation, refracting one’s performance in a situation, the relevance of one’s competence vis-à-vis one’s context, the profundity of one’s sense of innovation as well as the scope of its sustainability, and one’s ability to handle multiplicity, in terms of ideas and their applications. Such an intensely engaging training that brings together the personal and the societal, alone may be able to address the challenges faced by professionals handling management and governance-related responsibilities today in our institutions—governmental, nongovernmental and corporate. Let us first consider the most common and crucial concerns affecting our work spaces: Limits on Creative Freedom: One’s inability to fully appreciate and employ one’s creative freedom in a

65 talents, tastes and other enjoyable interests within the context of one’s work No Sense of Contribution to the World: Acceptance of a mechanical work culture, leading to the feeling of resignation that one has no meaningful way to use one’s work to contribute to the world at large. The above background necessitates the urgent development of a methodology of learning that goes beyond popular perspectives. While mastering this enjoyable process of enrichment that transcends limited perspectives, like the Zen master, every participant in learning becomes at once a child at a delightful play, and an engaging inspiration, model and guide for others.

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professional situation, leading to dissatisfaction Skill-Aspiration Mismatch: The mismatch between one’s skills and aspirations/ambitions leading to fluctuations in performance and peer relations. Lack of Rewards/Growth: Discontentment regarding material, professional and financial rewards vis-à-vis the time and effort given Corrupt Work Culture: Unhealthy competition and personal conflicts among peers leading to bitter work environment Lack of Transparency: Lack of organisational transparency regarding the route of professional growth, leading to rampant sycophancy and loss of focus No Personal Evolution: Inability to build on one’s

The Soul of Competitiveness By Mark Goyder

An entrepreneurial climate An entrepreneurial climate is one that encourages and nourishes entrepreneurs and dynamic companies and sees past business failure as useful experience rather than disgrace. Entrepreneurship and business diversity – the agenda for government 1) Keep it local. Reinforce the efforts of villages and networks of villages to promote microfinance, co-operatives and peer-to-peer lending. 2) Ensure that there are sources of credit for businesses that do not rely on the centralized formulaic lending criteria of many Western banks 3) Grant local co-operatives the freedom to borrow and lend along the lines pioneered in Spain by the Mondragon co-operatives that have developed over the decades to a point where they employ 83000 people and have a combined assets of 35bn euros. 4) Encourage entrepreneurs with access to startup finance. Encourage diversity of enterprise. Help social entrepreneurs to build their skills. Encourage experimentation with mutual ownership and different corporate forms. 5) Instead of assuming that the natural endpoint for all growing businesses is to be listed or funded by private equity, encourage financing for hybrids that combine trust, family, and employee ownership.

“An entrepreneurial climate is one that encourages and nourishes entrepreneurs and dynamic companies and sees past business failure as useful experience rather than disgrace.” An inclusive approach for companies towards purpose, values and relationships There is abundant evidence of businesses that over long periods of time seek to serve a purpose beyond profit outperform those who look for money alone. There are 20,000 companies in Japan that are more than one hundred years old. 600 are more than three hundred years old. There are 30 that are more than five hundred years old, and 5 businesses that are more than thousand years old. So, what are the things long lasting businesses have in common? Leadership with clear values; a long-term viewpoint; understanding the importance of people; exhibiting social consciousness; and frugality. The same things come up in other studies in Europe and America. Arie de Geus studied longlived companies and found they had in common financial conservatism, sensitivity to the surrounding environment, a sense of cohesion and identity in their employees, and the ability to delegate. The Stanford pair of Jim Collins and Jerry Porras found that a portfolio of companies which had outperformed the stock market by 15 times over 50 years differed from their peers by having a core purpose beyond making money, an emphasis on leadership that transcends the individual, and strong consistency between stated and actual values. A recent 10-year study of 50,000 brands around the world by the former Marketing Director of P&G found that: “Companies (which put)…ideals of improving people’s lives at the centre of all they do outperform the market by a huge margin, and frequently create both new businesses and entire new business sectors”. An investment in the top 50 of these companies would have outperformed the stock market average over ten years by 400%. … This inclusive approach is really common sense. Business is a human activity, conducted by human beings, in relationships with one another, using

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What is the basis of India’s competitiveness? It wouldn’t be different from any other country’s— talent and education; technology and a climate for innovation; infrastructure; fair markets; effective government and regulation; the rule of law; the health of civic society; and capital availability. But, as Michael Porter argues, competitiveness is ultimately created in companies—not just the next generation of hi-tech companies, but the whole ecology of enterprises and the value chains they form, not least of which are in vital sectors like food and agriculture. To have a healthy company sector, countries need 3 things—effective entrepreneurs, effective leaders and effective owners. Governments can enhance or undermine each of these.

68 “Stewardship means that both the owners and the board whom they have elected wish to pass on the business in a healthier shape than they inherited.” the mechanisms and disciplines of the market to help them achieve human purposes. Business activity is impossible without making a profit, but moneymaking is rarely the purpose. The best businesses steward their assets; they do not sweat them. An inclusive approach to companies – agenda for government. 1 Embed stewardship in the duties of the directors of companies, whether they are state-owned, mutuals, family businesses or privately owned: as directors they owe their duty to the company, while being accountable to shareholders, 2 Strike a balance in the treatment of listed companies with large family shareholdings. Protect minorities. But it is more prudent to have an anchor shareholder whose stake is large enough to make it a vigilant steward. 3 Rather than impose rigid rules on CSR, encourage development of voluntary movements of companies that commit to working to a higher standard. Use transparent procurement policies that make working to such standards an advantage. 4 Require larger companies, whatever their ownership, to publish a. A clear statement of their purpose and their values b. An integrated annual report giving an account of their stewardship in all relationships including financial progress, impact on community, economy, society and the natural environment. c. For companies employing more than 1000 people require a two-part annual meeting of shareholders. Part one is for the formal part for the election of directors and the formal approval of the annual report. Part two is open to all stakeholders. d. Require transparency in all matters of remuneration by larger companies, and transparency in the process of letting contracts.

It seems obvious. It has been true for centuries. Yet it has precious little to do with what is taught in our business schools, let alone the world of corporate finance. We do business with those we trust. Trust enhances the value of the brand. The best people want to work for organisations that give their work meaning and purpose beyond their financial return. And so it is that the leaders of all the best businesses start with purpose and values. This is the key to success and coherence in all relationships. Their CSR is not just on the sidelines, it is their purpose and values in action, in all their relationships. There are many examples of this inclusive approach from East and West. From Tata and Toyota, to Dr Reddy’s and Transasia. Ownership and stewardship So, why have we decided to ignore the very soul of competitiveness in our economic life in general, and in our capital markets in particular? The Shared Value agenda promoted by Professor Michael Porter has done much to achieve a reconnection with human purposes. To spread this approach, India now needs to rediscover the human purposes of ownership. You only have to look at the history of Tata to see a living and enduring example – a company in which leaders set a purpose with the confidence that it will be held to beyond the term of office of any one CEO. Stewardship means that both the owners and the board whom they have elected wish to pass on the business in a healthier shape than they inherited it. We need ownership that gives managers the confidence to manage without arrogance or greed. We need owners who see business as servant of society; who stimulate necessary change while holding on to constancy. Sometimes this may be done by mutual ownership. Credit unions are much better than banks at assessing many lending risks by making them local. Sometimes still, it is achieved by family ownership, provided that it is the kind of family ownership in which the family sees itself as a servant of society. Sometimes it will be done through the mechanism of listed markets, which efficiently recycle savings and profits, but we need them to operate in a much more inclusive way. Each time I visit India I see more and more advertisements for financial services companies. People save; their relatives send money back from working overseas; their parents pass on wealth when they die, that money increasingly flows into savings

1) Encourage concentrated rather than dispersed ownership while preserving rights of all shareholders 2) Encourage regular director where investment institutions with relevant stakeholders work to ensure there is a genuine and competitive election to the board of listed companies. 3) Legislate for increased trusteeship in listed companies. Encourage companies to channel a proportion of their profits into a trust structure for the long-term benefit of employees and other stakeholders. 4) Introduce a voluntary stewardship code for investors, requiring all those who collect money for savings and investment purposes to make a clear statement of their approach to investor stewardship. Ensure in this way that people saving for their life insurance and pensions have some assurance that those who handle their money are acting as trustees, channelling their money into well-stewarded companies and holding those companies to account. 5) Instead of banning high frequency trading, apply a transaction tax and use funds to create tax incentives to those investment institutions which are taking stewardship seriously as signatories of the code. Monitor stewardship by investment institutions and withdraw stewardship approval from those who fail to live up to its principles. 6) Apply stewardship principles to all investments over which the government has control, and to decisions about whether to allow foreign direct investment.

Sanskar – the motivation that comes from within. As the Modi government finds its feet, India, we are told, is at the crossroads. Its growth has slowed. It still hasn’t opened up its markets and liberalised its economy. The poor are still poor and the economic justice is still far off. Corruption has not been defeated. Perhaps there is truth in these criticisms. And yet, if, many of us here today would probably agree that the answer to India’s problems does not lie solely in technical or technocratic solutions. The foundations to competitiveness are to be found in the human spirit, and how it is applied to the achievement of better entrepreneurship, better company leadership and more effective investor stewardship. We all know what can happen when we leave everything to government. More rules, more red tape. More energy and cleverness wasted on how to bend the rules, at the expense of time spent trying to do better for the customer, and society. But working together, and in this spirit, business leaders, investment institutions, civil society and federal and state governments can create the climate for the competiveness of a nation.

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Ownership of companies – agenda for government

schemes, life insurance, and pensions. From there, in due course the savings find their way into the world’s capital markets. But those capital markets are not yet adjusted to serve human purposes. Shareholders are citizens and a growing number of citizens are shareholders. We all want and need value – a return on our investment consistent with an improving quality of life. What’s the point of being able to afford a car if it can’t move for the traffic around it? It is only the golden thread of effective investor stewardship that will channel citizens’ savings into results that citizens will value, through the operation of robust, principled companies in a thriving economy, a well-run society, and a sustainable environment.

My Little Epiphanies Book extract

By Aisha Chaudhary Aisha Choudharyâ&#x20AC;&#x2122;s book leaves you with a tear in your eye and a smile on your lips. This book of epiphanies reveals an indomitable spirit in the face of losing our most precious gift, life. Published by Bloomsbury

71 THINKERS

Introduction by Aditi Choudhary Aisha was born in March 1996 with SCID (Severe Combined Immune Deficiency) which is a rare genetic disorder wherein the child is born without an immune system and these kids don’t live long enough to see their first birthday unless they receive a BMT (Bone Marrow Transplant). Aisha was treated for the same at Great Ormond Street Hospital in London UK in November 1996. Aisha was diagnosed with pulmonary fibrosis (scarring and hardening of the lung) in January 2010 at the age of 13 years, which can be a side effect of the transplant - this made breathing very difficult for Aisha. This is not in itself an unusual story - what is however incredible is that my daughter Aisha was an inspirational speaker at the age of 14 years and she has given two talks on TED/INK. Her talks can be viewed at www.inktalks. com. The first one is called “Singing in the Lifeboat” and the second one (which she gave at the age of 17 years) is called “Finding Happiness”. The last year of her life was very difficult as she became completely bedridden and the smallest activity would cause her to become breathless. Aisha was on oxygen from a tank 24/7. It was Aisha’s attitude to life that enabled her to achieve so much and leave her mark on the world. Her talks have had well over half a million hits! Aisha believed in creating for the sake of creating, when she started a project she didn’t care about “what she would do with it”, she just had a desire to do something and she went ahead and did it. She believed that happiness is an attitude and a choice and so she went ahead despite the struggles and strived for happiness. She believed that she should focus on what was possible rather than wallow in self pity.

From the book: The fact that I’m sitting here, writing these words is a miracle. I would not have been here on this earth for more than a year, had destiny not changed its mind. Having lost something so big has taught me to appreciate the littlest things. I am blessed that I have my eyes to see the vividness in the green trees. I am blessed to have my sense of smell, so I can inhale (pun intended) that particular musty stink that hangs over Delhi after a day of rain. I am blessed to have my ears, so I can listen to the sound of my mother’s laughter. I am blessed to have my lips so I can speak to those I love. I am blessed to have my hands so I can paint whenever I please. I am blessed to have my legs so I can still walk on this earth. I must remember that I am blessed. Mama says, “Darling, if you have to go through shit, do it looking like a million bucks. Being depressed just means that I’m under repairs. When I feel the monotony of my day turn into sheer pain, the only thing I can really do is stop and appreciate whatever I may be doing. Just stop and listen to the words in the movie I am watching. Just stop and feel the soft fur

72 on my dogs, and give them a million kisses. Just stop and embrace the hot water on my body in the shower. Just stop and look at my surroundings. Just stop and take in the sweet taste of my favorite candy. We should just stop for a second, because one day we may not be able to start again. So let’s aim for the moon, walk together in the darkness and catch the glittering stars along the way. That night she spoke to her anger; the dirty maroon ball that was burning on the inside of her knotted stomach. This is what he told her: ‘I hate God for doing this to you, and I hate anybody who pisses you off. I become bigger and bigger, the more your heart aches. I control you. I am much bigger than you, and I know you hate me. Of course you do. I am unpleasant because I simply don’t feel good in your body. But it’s okay, because I am here to teach you a lesson. Without me, you wouldn’t have anything to feed off of. You don’t know it yet, but I am your friend. You can never get rid of me, for I will always be with you. You need to crack now. You have been hiding me away for far too long with those pretty smiles and the million, “‘I’m okay’s’”. It’s my

turn to shine; I am fed up of rotting inside you. Actually, maybe I am the one who is scared of you. I don’t like to see you upset. You are my friend. I’m going to come out whenever I want to. I don’t really care anymore. I know that you are strong enough to deal with it. I have won this game. I feel powerful. After all, it is me who makes you human, my darling.’ Kapil Arora, President Ogilvy, North on My Little Epiphanies by Aisha Chaudhary Epiphanies curated by Aisha, are not just the musings of any 18 year old. They are a rare insight into the human mind, taking the reader on a journey to the depths of being, to gut wrenching sadness, to Phoenix-like hope, to musings on love and sometimes plain simple girly giggles - peppered deliciously with dark humour and wicked satire. Little Big Aisha doesn’t have all the answers, but she sure as hell gets you to reflect on the things that matter. And does so in a manner that her words linger in the crevices of your mind long after you’ve encountered them. Aisha’s ‘My Little Epiphanies’ is to be read to be inspired, to know that you are not alone or simply to be thankful for what you have.

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Competitiveness,

shared value

and

social progress

By Michael E. Porter Bishop William Lawrence University Professor at The Institute for Strategy and Competitiveness, based at the Harvard Business School at the eponymous Porter Prize ceremony.

75 “We are starting to see tremendous breakthroughs to combine and integrate economic and social development and to see the role of business in both.” about these 2 different things. The successful countries over the next 20-30 years are going to be the countries who would put these agendas together. They are not just going to be narrowly thinking either of economic development or social progress of the society. They are thinking of ways to synthesize these 2 fundamental aspects of human existence and human progress. India has been doing well but it has a long way to go to ultimately get to where it wants to be. Any true economic development requires competitiveness. We have to create a competitive economy if we are going to create an economy which supports jobs, and rising level of prosperity. Competitiveness helps to create a business environment and efficiency in the productivity of the economy that allows good jobs to be created. Efforts to artificially create jobs does not mean you are competitive and would not lead to a successful society. We are starting to understand that low wages are not success, and you are not competitive as you have low wages. If you have low wages it means you have not built the skill base, efficiency, infrastructure in your business environment to allow wages to be high and rising. So, we are learning all over the world now that to increase competitiveness we have to take the thinking to the next level to recognize its true character. The foundation of competitiveness in any nation, region, or state is endowment. Every location in the world is endowed with things like natural resources, geographical location, population, and group of people that have come to live there and work there. That endowment is essential for the ability of that location to be competitive. If you have a good location, a market place nearby, if you can access other markets very efficiently; that endowment improves competitiveness. If you have abundant natural resources, a large population of people living there, can provide competitiveness. What we have learnt is that the endowment you inherit does not have value in itself. To convert endowment into a really competitive advantage you have to build assets, skills and infrastructure, knowledge on top of the endowment,

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Competitiveness We are at a challenging point in the history of economy and in the development of society, all over the world, including our country US. I think we have started to see that the narrow view of different problems – economy, society and business are starting to merge and what we normally thought of as separate topics or agendas are really joined agendas and have come together in powerful ways. This is becoming increasingly clear in the whole area of development. We had a long tradition of thinking about economic development which is usually measured by GDP per capita. We also have a tradition to think about economic strategy to really raise the standard of economic development. This is an active discussion now in every part of the world. Every country in the world is trying to become competitive so that it can drive economic development, raise the prosperity of its citizen and do it in an inclusive way where it benefits many people and not just few who control most of the wealth in society. We talk about inclusive development everyday in US as we are now seeing a rising inequality in our society and are deeply concerned about what to do about that. But economic development is different from social development—needs for health, for environment, for nutrition are huge fields in social development. The people who do economic development are different from people who do social development. We have started to see though that the role of business is evolving and the expectation of business both in economic and social development is also evolving. So, we have 2 traditional fields of economic and social development and business sitting to its side, and we have started to seeing that these areas which were separate have started to blend in a variety of different ways. We are starting to see tremendous breakthroughs to combine and integrate economic and social development and to see the role of business in both. What we have understood is that economic development and social development are powerfully connected that if we are going to succeed in economic development we have to succeed in social development and vice versa. We can’t think of these things as different anymore. For the last 20-30 years we thought of these 2 entities to be different and there was a contest between economic progress and social progress. What we are understanding more and more is that there is no contest at all. There is a need to align and create synergy between the way we think

76 “What we have learnt is that the endowment you inherit does not have value in itself.” in order to make the endowment produce true prosperity and enhanced/rising prosperity for the citizens. In building competitiveness, we need 2 other layers, of policy and circumstance, which will allow us to be truly competitive. The first layer is macro economic competitiveness—it’s the foundation/ overall platform in a society. We need to use our financial resources well and not have too much debt. We would also need to put in place the basic political institutions which work effectively, do their job and are relatively efficient in conducting the work that government must conduct. We need basic human development in order to have an opportunity to go anywhere in terms of economic development. This is the macro competitiveness level and it is critical. This becomes a first huge challenge in many developing countries. We have to get to this level of quality that enables moving beyond a low-income economy. The macro economic level, we have learnt, is also not enough. Just like endowments are not enough, just having sound economic policies, having effective political institutions is not enough either. They are necessary but they are not sufficient. What really creates competitiveness is what we call the micro economic competitiveness. That’s the capability of the actual business in the economy itself and that can be seen in 3 parts: Quality of business environment: We need to keep on raising the quality of the business environment if we are going to be more productive. It’s that productivity that would allow us to improve wages and standard of living. Every country is working in driving and improving the business environment in their country. We are benchmarking and trying to raise that bar. Capabilities of the companies themselves: You can’t have a competitive economy unless you have competitive firms that are efficient, that do business well, that are good at mobilizing their people, increasing their skills; and becoming more sophisticated and innovative over time. India is endowed with a lot of companies which are truly world class and are critical in raising the

competitiveness and prosperity of the country. Notion of clusters: Clusters are where you can achieve critical mass of a whole group of companies in the same field that actually give you the power to drive much more productivity and much more innovative activity than when you talk about firms that are operating on their own. A good example of a cluster is the life sciences cluster in Massachusetts. This is by far the most innovative, dynamic, concentration of life sciences companies and related services and activities, and supporting industries in the world. This is the true lift-off factor in economic development and growth. When we build the cluster that’s where the jobs get created and new companies sprout up. This is where wages get driven up. Wages are higher when you have critical mass than when one or 2 firms are working by themselves. We find that patenting and innovative activities are concentrated where you have the critical mass because you have the ability and the flexibility to stimulate and motivate innovation. It has been proven by research that if you build a cluster you get more stability over the cycle. During the great recession in America, the regions/ locations/ cities that did best were the ones that had strong clusters. Those clusters were robust and they had more sophisticated competitive advantages, they had more flexibility to respond to the deep problems with the sharp economic downturn. A lot of new energy of economic development is about creating institutions that enable clusters to work, that stimulates collaboration across businesses in the clusters and so on. Much energy of economic development is not at the national level but at the regional / metropolitan level in cities and states. Regions and cities are the places where the energy is really happening and the economic policies must be created at the regional level for building its own economy, based on clusters and circumstances. Every city has to think about where it stands and about its business environment and the areas where it can be unique and establish world-class capability. As we diversify the economy and as we develop our economy, we understand it does not develop randomly. Growth in economy goes from strength to strength. If you have got strength in one cluster then it shows that you have the opportunity to grow in related clusters where you can take advantage of the skills, the infrastructure, the supplier base etc. We have to think about economic development

Social Progress Having achieved economic development does not necessarily mean that we are done. An economic performance is not the only measure of success of society. There is a movement called “Beyond GDP Movement” which is building now for quite some time. The Human Development Index (HDI) and Human Development Report were the first efforts to do that. Amartya Sen was really the intellectual force behind that. HDI says that we have to look at GDP and also at basic health and education. More recently people have been talking about life satisfaction, happiness, what really matters is that we got to make sure that people feel fulfilled and happy so there is a lot of work around measuring that. What creates a fulfilled and happy society and citizen? All of these efforts have done good work and added a lot to our knowledge. We believe that we could take this to another level. We have to find a rigorous way to actually measure the health of the society and we came out with the social progress index. I have spent many years studying economic competitiveness and performance but last few years I have been thinking about social performance. We created the idea of Social Progress Index (SPI) to integrate the social and environment indicators and separate the economic indicators out. So, the first principle is we created the SPI which was just the environmental and social indicators and then we could look at how they would be related to economic indicators. The 2nd principle in measuring SP is to focus on outcomes and not how much money you spent, not how much you care but how much you are achieving in terms of whatever social area it is, nutrition, women’s rights etc. This way we create a very holistic measure of social progress in all countries whether poor, rich, or in between. We wanted to do this in a way which is sufficiently rich and granular so that it is actionable, it uses benchmarks to see how you are doing, and then

hopefully drive change. To do that we have to be looking at specific things, you can’t be looking at broad principles because they are not really actionable. Let’s start with the definition. Social progress is the capacity of a society to first meet the basic needs of its citizens, shelter, and safety, and so on. Secondly, establish the building blocks which would allow both the citizen and the community to enhance and sustain the quality of their life. Thirdly to create the conditions that every individual could reach their full potential whatever that was. This was the definition that we evolved to. This led us to comprehensively look at all the literature on social development which is vast, and say how do we capture this and what is the best available data/ matrix that we have to measure the health of the society. The framework evolved into one we published in April 2014, the first version of the global SPI. It was able to cover 132 countries in the world. It covers the highest percentage of population in the world. It covers most of the important countries of the world although there were a few conspicuous countries which had to be left out since there was no data to accurately assess them. There are basic dimensions of human needs that emerge from literature and from all the work that we have done on well-being and opportunity. This effort is evolving and we have had a beta version and continue to refine this basic framework which has been relatively well accepted. For each of these areas there are some specific indicators of success in society that are based on internationally respected data, consistently developed across countries. Some come from World Bank, UN, individual NGO and we have gone through an extensive process and tried to make this a robust effort. Ranking of 132 countries was done and ranking emerged from the individual indicators, methodology and construct for an overall index. We can construct and cut this data in variety of ways. India ranks 102 and in general more advanced countries were higher and poor developing countries were lower. But there was a lot of variation. We had some wealthy countries that were doing so well at this and some medium countries that were also doing very well. What we are trying to do is to decompose the economic and the social and see how they are related together. There are outliers also like Saudi Arabia—quite high in income but well below where they should

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strategically. It’s not about doing the same things, having the same policies as everybody else. Its about knowing your own particular region/ city/ state, where your areas of strengths are and where you have the critical mass of expertise and companies in a particular field and figuring out how to build that to diversify the economy. This is conceptually economic development that is relatively recently understood and I think it has huge role in India as India tries to continue to raise the standards of prosperity in a vast country with multiple regions and various different circumstances.

78 be in terms of their income and social progress. We see other countries fighting about their way. New Zealand, for instance, is more of an upper middle country and had the highest objective matrix of health of society of any country in the world. India is much lower income country and the social progress is little less than you would expect given the level of average income. India is a very complex country. It is large. There are lots of states. We are driving this measure down to the level of states, cities and over the years there would be lot more insights on whatâ&#x20AC;&#x2122;s really going on here. India is currently underperforming on social progress relative to the level of economic development, but I want to caution that India is very heterogeneous in terms of lots of different groups/ regions and the idea of average score board is problematic. The countries that do best on social and economic indicators are the countries which are self-critical and can use the indicators to mobilize change. Shared Value Whatâ&#x20AC;&#x2122;s the role of business in society? The role is to create economic prosperity and build business by making a profit. Businesses success is not independent of society and the need that businesses meet are not independent of the needs of the society. Thatâ&#x20AC;&#x2122;s led to the development of notion of shared value. Historically we have thought of it in an evolving way. Traditionally, businesses would affect society by giving money and making donations. This mindset of business giving back is important and we support that. It energizes business to influence the community around it as if the business does not have a good influence then there are no prospects of business to grow and thrive. Beyond that companies have taken to CSR. Raising the bar in terms of citizenship, compliance, sustainable behaviour, not doing harm, not polluting the environment, mitigating the risks, preventing damage to society and discrimination against people. I am proud of business communities globally and the Indian business community in terms of their commitment to be good citizens, to be sustainable, to mitigate harms and impacts that the business are having that are not good and through this improving the trust of business. As business got focused on maximizing shareholder value and did not really think about the community, that led to a lack of trust and support in business in many parts of the world. We believe very

strongly that philanthropy and CSR are not the most important effects of business on society. The way in business we can affect the society the most is through our business, through our products, and the way we produce our products. Through the way we source our raw materials and inputs through those products and through the way we create better infrastructure in the communities in which we are doing business. All these things are not social things. They are things that are tied to the fundamental profit and success of that business. We are coming to believe that at this moment in history the greatest opportunities for business are actually in meeting conventional economic needs, in addressing societal needs including environmental needs with the business model. Which means we do it in a way which makes profit. We are efficient enough to deliver important social needs in a high enough way that we can make profit. I want to emphasize that this should not be seen as balancing business vs society. Balancing suggests that we have to do different things to benefit society and different things to benefit business. We believe all of you need to think about how you can drive progress in society through your business in a way that allows your business to thrive. If we can produce a product like Unilever for instance, that allows people to have better health. You reduce diarrhea by having a market campaign for soap that helps people to wash hands. The impact that you can have is much more important/ significant than you can have with CSR or donation. If we want to move the needle in society we have to bring the meeting of social needs into the core of the thinking about strategy and about business. The problem with philanthropy and CSR is it is not self-sustaining. Every year we have to give more money. In CSR we have to spend more money but when we talk about shared value it is self-sustaining. You can come up with a product that really moves the needle on something for society, low income housing, better nutrition, better health, good environment. Way back in history this is what capitalism used to be. What we have in most countries of the world in terms of infrastructure, quality of life, housing, food, etc all the things that we depend on everyday, exist because of business and traditionally business used to think that way. Business used to think of critically driving and meeting the needs of the community and citizens but somewhere along the line in the last 20 years we have got so clever and sophisticated about strategy,

79 might play, where are the needs in the society that you could possibly meet when you do business. We have to close the loop in society. We cannot have government fighting business, and business fighting NGOs, everybody pursuing their own issues. We have to see that we are on the same team, we have the same fundamental goals, though there is tremendous difference about how we think about the solutions. I think the more we think about the solutions, not as redistributionâ&#x20AC;&#x201D;take things/ money from one group and give it to another; the more we can see solutions around collaboration, innovation, and harnessing institutions for what they can do best, the more we would make progress.

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business, finance, shareholder value that somehow the mindset blinded us to the tremendous impact we can have in society through our businesses itself. Ultimately business has a profound impact on economic development, business has an important stake in improving the clusters in which they are operating, and raising the bar in terms of business environment. Business also has a profound impact on social progress, on meeting human needs, on improving the quality of life, on creating opportunities for citizens. In terms of where the business should be playing, I think the social progress index with its green and its red and yellow boxes starts to create insights on where you

Be a ‘giver’ in business, instead of a ‘taker’ By Joyshree Reinelt, Subodh Deshpande, Sonia Kapoor Businesses and brands that will be recognized, loved, and chosen in the long term are the ones that create genuine value for all stakeholders.

81 Serve the agenda of others: choose a fight that matters Amul is a unique Indian brand to seek inspiration from in this regard. The story of Amul began in 1946 – at the height of India’s freedom movement. Inspired by the mood and atmosphere of the time, a group of dairy farmers in the small town of Anand, in Gujarat state, decided to take action against a local trade cartel that was buying milk from them at exploitative prices and selling it at substantial profit. The farmers approached one of India’s great patriots and freedom fighters in the region, who advised them to get rid of the middlemen and form their own dairy cooperative. Encouraged by support from the highest levels, the farmers went on strike and refused to supply milk to the cartel.

Design to Give There is another nobler way to make profits. Mandela had famously said that if people can be taught to hate, then they can also learn to love, because love comes more naturally to humans than its opposite. Entrepreneurs can be made to see anew that the sole objective of businesses is not only to make profit but also make a difference to the lives of people in the process. And importantly that profits and positive societal impact are both possible. We call this the dare to care way for more meaningful growth and went out in search of a handful of “dare to care behaviors” that can turn the idea of “giving while winning” into a reality that people can enact. We see business managers’ not as helpless puppets manipulated by the force of profit making but as happiness generators that bring happiness and well being to communities through their impact as well as happiness to their company through earning profits. This is possible by replacing the ‘taker’ behaviors with 3 high leverage ‘giver’ behaviors:

The farmers then went ahead and formed their own co-operative called Kaira District Co-operative Milk Producers Union Ltd., beginning with just two villages dairy co-operative societies, handling 247 litres of milk. The co-operative model was simple but remarkable. A cooperative society was set up at the village level, where every dairy farmer, big or small could become a shareholder at a nominal subscription. Milk was to be collected once or twice a day at a village collection centre to minimize transportation costs. Farmers were paid by the quality and quantity of milk, which was directly supplied, to the Bombay Milk Scheme, circumventing the exploitative middlemen. This was the origin of what eventually became the well-known ‘Amul’ brand.

“Entrepreneurs can be made to see anew that the sole objective of businesses is not only to make profit but also make a difference to the lives of people in the process.”

Focus on growing the pie to serve many, and engage many to grow your part of the pie The founders of the Kaira Union spread their campaign across other villages. Slowly, as word spread more villages joined the Union and a dairy plant was commissioned to process the milk and market the milk to neighbourhood towns and bigger

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Born to Take Ask any successful business person and they will tell you with a gleam in their eye how their business was born. It follows a familiar storyline of fighting against odds, staring at the prospect of failure and then eventual success. They will tell you how one had to be shrewd in managing costs and price intelligently to maximize profits. Today the central motivation at the heart of most businesses is built around this creation of ‘profit’. Profit is never a given, it has to be wrested and squeezed out. It has to be ‘taken’. Greed is good it seems, when it comes to running a business. Formidable thinkers like Milton Friedman cemented this belief when they postulated that the only legitimate responsibility of a businessperson is to maximize “shareholder value”. This is now enshrined as the Wall Street ethic. This core belief that profit has to be extracted at any cost; transforms managers into joyless and helpless takers who are forced to adopt selfish ‘taker’ behaviors like “put your agenda first and care only about yourself”, “compete for the biggest part of the pie and extracting as much value as possible” and “focus on maximizing short gains and profit”. Businesses are born to ‘take’.

82 “When looking at examples like Amul we can imagine a world where companies who do the good can make the most money.” cities. The movement spread to other districts and societies sprung up everywhere. Today 3 million farmers in Gujarat are owners of what was popularly called ‘Amul Dairy’, producing packaged milk, cheese, butter, chocolates and a wide variety of other related categories. In 1950 Dr. Varghese Kurien was hired to professionally manage operations. Realising the importance of branding and marketing the ‘Amul’ brand was created, derived from the Hindi word ‘amulya’ which means ‘priceless’, symbolizing the pride of a home grown brand created ‘by the people’ and ‘for the people’. Amul’s popular advertising campaigns are a reflection of their ‘giver’ approach. Its ads typically address day-to-day social and political issues with tongue in cheek humor. Despite encountering political pressure on several occasions, it has not backed down from addressing some ‘uncomfortable’ issues such as commenting on the Naxalite uprising in Bengal and its opposition to the Supreme Court of India ruling criminalizing homesexuality in India. Create value that lasts by creating long-term relationships The third vital behavior of successful giver brands is that they build long-term relationships and create a healthy eco-system of stakeholders. Amul’s story does not end with a grassroots movement in one state. Its founders wanted to spread and replicate the success of the ‘Anand Pattern’ in other parts of India. The country’s National Planners gave the ‘go ahead’ to Dr. Kurien to set up an apex body called the National Dairy Development Board to implement the ‘co-operative’ model in all Indian states. In 1970 ‘Operation Flood’ was launched aimed at making the country self sufficient in milk production.

Today there are around 176 cooperative dairy unions formed by 125,000 dairy cooperative societies comprising 13 million farmers on the same pattern, who are processing and marketing milk and milk products profitably, be it Amul in Gujarat or Verka in Punjab, Vijaya in Andhra Pradesh, Milma in Kerala, Gokul in Maharashtra, Saras in Rajasthan or a Nandini in Karnataka. To further inspire the world Dr. Kurien commissioned a notable Indian film- maker to tell the Amul story in a movie called Manthan. Over five lakh rural farmers in Gujarat who contributed Rs. 2 each to its budget financed the film. Upon its release, these farmers went in truckloads to watch ‘their’ film, making it a commercial success. Manthan was chosen for the 1977 National Film Award for Best Feature Film in Hindi. Dr. Kurien also set up the Institute of Rural Management (IRMA) to train management graduates to professionally run rural based enterprises. The cooperative pattern has been further replicated with oilseeds farmers and horticulture producers. When looking at examples like Amul we can imagine a world where companies who do good can make the most money, a world where people who give are successful winners, a world where people uphold the simple belief that generosity pays, thus creating shared value for each stakeholder in the eco system. When we look at ourselves as private people we do believe in the generosity of giving. As a parent we believe in endless love and nurturance to grow our children, as community members we believe in serving the good of the larger whole, as consumers we want to buy brands from companies that symbolize fair and sustainable production and business practices, as an employee we want to work for a company with a honest, respectful and fair corporate culture where we feel valued for who we are and the contribution we make. Since the striving for giving is innately more dominant in us as human beings than the striving to selfishly take, it gives us hope that more and more businesses and brands will apply this human logic to the way they function.

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Asian Drama: Samurai, Tigers and Giants By Sankalp Sharma The author embarks on a close evaluation of the economic performance of Asian countries over the years. In particular, the article looks at the big three economies of Asia (namely China, Japan and India) and the Asian Tigers (namely South Korea, Taiwan, Hong Kong and Singapore).

The Land of the rising sun The remarkable story from 1950-1980’s post-WW2 was of Japan that grew with incredible speed. Aided by United States it became the second largest economic power in the world by 1970. Japan achieved the feat by building an environment of trust between the bureaucracy and industry as well as by promoting meritocracy in the educational system. Also, focus on technology; productivity and a rise in personal savings formed the basis of

“Japan increased its per capita GDP to western standards—an astounding 42,000 USD in 1995 up from just 450 USD in 1960.” investment and further growth. It enabled Japan to grow at almost 11 % in the 1960s. The 1980’s saw Japan reaching greater heights with its trading relationship and a surplus with USA reaching epic proportions. However at the beginning of 1990’s Japan slipped into a decade-long recession, that according to some estimates lead to a capital loss of $ 7.2 trillion between 1992 and 1996. It caused a slow and steady decline. Japan increased its per capita GDP to western standards—an astounding 42,000 USD in 1995 up from just 450 USD in 1960. At present post the recession, Japan faces a problem of an aging society but its GDP per capita in 2013 is still 38000 USD per capita, indeed very good by Asian standards. The recent economic thrust by PM Abe has been on fiscal stimulus, monetary expansion, and structural reforms. The Asian Tigers The period from 1980’s up to the mid-1990s saw the emergence of four Asian tigers namely South Korea, Taiwan, Hong Kong and Singapore. Their institutional foundations had been strong in the context of capitalism and their proximity to Japan, abundant low-cost labor and their export competitiveness lead to the initial belief of a coming ‘Asian Century’. Their governments were largely autocratic when they started, but their belief in economic development lead these countries to register astounding rates of growth. South Korea’s initial focus on economic growth early on in 1960’s was that of government led industrialized development bolstered by statesupported industrial firms with developmental loans from Japan and US. The autocratic South Korean presidents that succeeded Park Chung Hee have done well running the Korean economy. Manufacturing has been the strength of the Korean economy with popular industrial giants like Samsung and Hyundai becoming iconic brands. Taiwan’s initial focus was on import substitution as well as a distinct focus on infrastructure. The ten major construction projects initiated in 1970s helped Taiwan transform into an export-driven

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Just as the 19th century was dominated by British imperialism, the 20th was dominated by American democracy, and the 21st will be shaped by Asia’s expanding role in the geo-economic and the geopolitical sphere. According to recent estimates, the economic center of the world is shifting east at the rate of approximately 140 km a year. It lends belief that the rise of Asia is one of the greatest historical rebalancing exercises recorded in human history because Asia had been at the economic center of the world. The economic center started shifting westwards and northwards from Asia significantly only in the 19th and 20th centuries when the industrial revolution started yielding economic results for Europe and America. According to historical datasets of the world economy by Angus Maddison, at the start of the 17th century, i.e., in 1600 AD, India and China together accounted for roughly 50% of the world GDP. The GDP percentages were largely consistent with their population percentages in the world economy at roughly 55%. All this began to change with the rise of imperial Europe fueled by institutions like the joint stock company and fast rising capitalist America. It was a profound period in human history with some of the greatest inventions and innovations taking place not only in science and technology but also in social and political institutions and their organization. By 1950, the balance of power had shifted. Europe’s share in the world increased mildly from 23% in 1600 to 30% of the world economy by 1950. However, a clear standout in the economic performance was USA whose share in global GDP increased from a mere 0.2% in 1600 to 27.2% by 1950. USA’s rise was based on the twin principles of democracy and capitalism. Asia’s share of the world economy shrunk from 66% in 1600 to 18% by 1950. The post-1950 period saw the emergence of a new Asia with several newly independent countries.

86 economy. The per capita GDP levels increased in Taiwan drastically and at present are close to 20,000 USD in 2013. Hong Kong and Singapore similarly have seen astounding levels of economic growth aided by capital development and institutions. Singapore’s autocratic leader Lee Kuan Yew who died recently changed the face of his country. It was a mere fishing port village in 1965 when it was thrust out of Malaysia but Lee’s leadership evolved it to a global financial hub over the past 40 years. The country’s per capita income has increased by more than 100 times from 1965 and is better than some of the developed nations. The country has achieved astounding levels of prosperity and also

“Singapore was a mere fishing port village in 1965 when it was thrust out of Malaysia but Lee’s leadership evolved it to a global financial hub over the past 40 years.” remarkable is the multicultural ethos and value system of hard work and mutual respect within the city-state. Hong Kong like Singapore was a port town that initiated a series of reforms beginning 1971 for improvement of the public services, environment, housing, welfare, education, and infrastructure. These laid the foundation for it to become a global city with per capita income of 38,000 USD in 2013. The population giants The first three decades post 1950 saw the two Asian population giants namely China and India struggle with their massive populations amid great poverty. One of them followed the path of communism under Chairman Mao while the other opted for the mixed economy under Nehru. Under Mao, the Chinese saw the great leap forward while, under Nehru, India chose state-sponsored planned economic development. The 1960’s also saw green revolution in India aimed at building food security for its increasing population. The ensuing 2-3 decades saw low growth in the economy in these two countries. China’s great leap forward quickly

turned to a cultural revolution that had an adverse impact on adult education and the economy. Similarly, the 1970’s in India saw political turmoil in the form of an emergency, and a failed program at compulsory sterilization aimed at controlling population. In 1978, China under Deng Xiaoping made agricultural farmers a kind of entrepreneurs under the ‘responsibility system’. China also initiated several other reforms, birth control and an open approach to trade with USA and Japan aimed at modernization and strengthening the economy. Several authors started to feel that the reformist China was more close to capitalism than communism. In the 1990’s and 2000’s the country saw an increasing entrepreneurial class and an expanding power of Chinese state-owned enterprises. The period also saw greater trade ties and integration into the world economy. In 2013, Chinese per capita GDP had grown more than 40 times since Deng initiated reforms in 1978. India too embraced the market route in 1991 amid balance of payments crises, and this led it to open the economy under PM Narasimha Rao after the policymakers and people alike were fed up with the license raj. Several sectors saw capital infusion and growth. Prominent among these were the pharmaceutical, automobile, IT, telecom, and banking sectors. It enabled the rise of the new middle class in India and better standards of living. The economy registered more than 6-7 % growth rates consistently till 2010. The GDP per capita grew close to 5 times since the levels in 1991. Unique problems notwithstanding that each of the Asian economies mentioned above need to confront, the following broad areas can help ensure their growth and competitiveness: Nurturing institutions that establish not only the rule of law but help boost trade, economic competitiveness and ease of doing business. The approach will start with building an atmosphere of trust and transparency between the political class, bureaucracy, and industry. Inculcating ‘Asian values’ of hard work and meritocracy for personal growth in life. Apart from this understanding the value of productivity as a driver of economic growth. These values also help in the helping people that value integrity and performance as key drivers for success. Embracing more openness both in the economy

87 all sorts highways, ports, airports, dams, power infrastructure, hi speed rails, etc. Understanding the role of the state as well as the role that free markets, companies, and businesses can play in boosting growth and competitiveness within the region. P.S.: The title of this piece borrows from the 3-volume book having the analysis of the poverty in South and Southeast Asia by Nobel Laureate Gunnar Myrdal. His prescriptions at that time included controlling population, investing in healthcare and education as part of the thrust to improve economic development within the region. Much has changed within the region, as poverty has declined, capitalism flourished but much has remained the same like problems in infrastructure development, political turmoil, etc.

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and in various forms of governance and citizen engagement. Undertaking systematic reforms from time to time as required by the individual economy. Focusing on harnessing the most crucial resources within the individual countries- namely people by investing in their education, skills, and health. Ultimately the fruits of a demographic dividend will depend on how many successful creative companies can be built on an individual countryâ&#x20AC;&#x2122;s soil. Investing in physical infrastructure as most parts of Asia barring some small islands of firstclass infrastructure within Japan, â&#x20AC;&#x2DC;Asian Tigersâ&#x20AC;&#x2122; and China still have a long way to catch up with the developed world standards. India certainly needs a push in this regard. It includes infrastructure of

88 CONTRIBUTORS

Aisha Chaudhary

Aisha Chaudhary is the author of My Little Epiphanies

Chetan Mahajan

Chetan Mahajan is an independent consultant and author of The Bad Boys of Bokaro Jail. Previously he was the Business Head of HCL Learning.

Christian Ketels

Christian Ketels is a member of the Harvard Business School faculty at Professor Michael E. Porter’s Institute for Strategy and Competitiveness. He is President of TCI, a global network of professionals in the field of competitiveness, clusters, and innovation.

Don Tapscott

Don Tapscott is one of the world’s leading authorities on innovation, media, and the economic and social impact of technology and advises business and government leaders around the world. In 2013, Thinkers50 ranked Don fourth among the world’s most influential management thinkers and was awarded the Global Solutions Award.

Etienne Benet

Etienne Benet is managing director, Nestlé India Limited.

Jordan Kasslow

Jordan Kassalow founder and Co-Chairman of VisionSpring has more than 20 years of experience providing eye care to the world’s poor. Jordan is the inaugural winner of the John P. McNulty Prize, the 2006 winner of BYU’s Innovator Award and has received Duke University’s Social Innovation Award on behalf of VisionSpring.

Joyshree Reinelt

Joyshree Reinelt is a co-founder of Innate Motion and enjoys to work around the globe. Starting out as a clinical psychologist, she soon saw her calling in transforming business clients to apply more human logic to business instead of too much business logic to humans. She believes that only those companies with a shared purpose will earn their right to exist in future.

89 Mark Goyder is founder director, Tomorrow’s Company.

Michael E. Porter

Michael E. Porter is the Bishop William Lawrence University Professor at The Institute for Strategy and Competitiveness, based at the Harvard Business School.

Mike Walsh

Mike Walsh is CEO of Tomorrow, a global innovation lab whose clients have included Fujifilm, Merck Pharmaceutical, BBC Worldwide, Bentley Motors and HSBC. He is a leading authority on building business for the 21st century. He combines insights into emerging technologies with a pragmatic ‘how-to’ approach to change that provides global business leaders with a roadmap for the future.

Paul Barnett

Paul Barnett is founder and CEO Strategic Management Forum, an organization that works towards advancing the professional practice of strategic management.

Raghavendra Rau

Raghavendra Rau is the Sir Evelyn de Rothschild Professor of Finance at the Cambridge Judge Business School and a past president of the European Finance Association. He is Head of the School’s Finance & Accounting subject group, and a director of the Cambridge Centre of Alternative Finance.

Rizio Yohannan Raj

Rizio Yohannan Raj is executive director of Lila Foundation, a think-tank engaged in multidisciplinary and intercultural knowledge production, dissemination and conservation.

Sameer Nagpal

Sameer Nagpal is Managing Director and CEO of Shalimar Paints. He is one of India’s acknowledged business strategists and transformation leaders. He believes the combination of ethics and strategy can play an important role in driving social and economic value for all stakeholders.

Sangeet Paul Choudary

Sangeet Paul Choudary is the founder and CEO of Platform Thinking Labs which specializes in platform business models and network effects businesses. He is currently also an industry fellow with The Center for Global Enterprise and entrepreneur in residence at INSEAD.

Sanjiv Mehta

Sanjiv Mehta is CEO and managing director of Hindustan Unilever Limited.

Sonia Kapoor

Sonia Kapoor joined Innate Motion as a Business Humanizer fascinated to turn human insights into cultural drivers for business. She has more than 20 years of consumer research experience across many industry sectors.

Sankalp Sharma

Sankalp Sharma is Senior Researcher at the Institute for Competitiveness, India. Institute for Competitiveness is the Indian affiliate of the Institute for Strategy and Competitiveness at Harvard Business School. His work has been featured in various newspapers and magazines including, Mint, The Telegraph, Business Standard, Economic Times, Governance Now, The Sentinel, Business Today and various online portals.

Subodh Deshpande

Subodh Deshpande joined Innate Motion as a Business Humanizer in Singapore 4 years ago. He has He loves helping clients finding and defining the higher purpose of their brands and translating this into resonating narratives and engagement strategies.

Sunand Sharma

Sunand Sharma is an adviser to ALSTOM India & South Asia as well as a Board member of select ALSTOM companies. He has over 35 years experience providing strategic advice to global companies.

Stuart L. Hart

Stuart L. Hart is a global thinker and Founder and President of Enterprise for a Sustainable World, a nonprofit organisation dedicated to helping businesses make the transition to sustainability.

THINKERS

Mark Goyder

rethinking

By Kevin Stolarick Consulting Editor Things are not going well. OK, maybe a little too harsh? For the vast majority (99%?) of people, things are not going well. How about: For way too many people, things are not going well enough. No matter how full or empty you like to describe your glass, some amount of space exists between the level of the liquid and the top of the glass. And, that is a problem. So, what do we do? What do we have to do? What should we do? What are we going to be forced to do? What should we be forced to do? The answers are not the same. And, that too, is part of the problem. Do we have too much capitalism? Too little? The wrong kind? Not competitive enough? Too competitive? Does our capitalism need an upgrade? Do we have to take it all the way to 2.0? Or, is 1.6 enough? Or, maybe we’ve tried 2.0, and now it’s time for Capitalism 3.0 (or 4.0?). Has Marx finally stayed Adam Smith’s invisible hand? Is Smith’s hand stronger than ever? Since the only possible answer to all of these questions is “yes”, that too is part of the problem. One aspect of any possible solution lies in understanding and thinking about “prosperity”. My own research points out that prosperity is a multidimensional concept whose dimensions and values vary from country to country, city to city, and person to person. What is really important to one person or one group may be of no importance whatsoever to another and vice versa. Prosperity is not just about growth, development, economic performance, GDP, wealth, and income – although those things do matter. They can be incredibly important and can be even more important as

contributing factors to generating other dimensions of prosperity like health, education, well-being, and happiness. As someone wisely told me, “Money might not solve all my problems, but it certainly solves my money problems.” Social enterprises, new models for organizations, new ways of organizing markets, completely new approaches to organizing social and political economies – all have their place. Each can be right. Each can be very wrong. Understanding and predicting trends and directions is tricky. As the wise Jedi Master Yoda said, “Difficult to see. Always in motion is the future.” Yet, these ideas are about constructing or reconstructing that future. The challenge is that prosperity is a variable, multi-dimensional concept. And, given the desire to find ways to not only grow but also equitably distribute that prosperity, the challenge is multiplied. We first need to figure out what we have, what is needed and what is wanted. Only then, can we determine what has to be done. If I don’t know where I’m going, how am I going to know if I’ve gotten there? In this issue of Thinkers a collection of very smart, thinking people talk about their questions, their problems, and some potential solutions. Read them. Agree with them. Disagree with them. Think about what they’ve said. And, then, think again. These are challenging problems – these problems aren’t just ‘wicked’ – they are downright nasty and malevolent. The answers when they come, will not come easily. They will require thinking and thinking some more and then rethinking.

The present issue looks at ideas pertaining to capitalism and how it can get redefined. Without a doubt, social and economic objectives go hand-inhand and we can present a model of growth to the people of the world which is devoid of disparity, which is inclusive, that celebrates innovation and looks at unique business models for combating social progress. The challenge at hand is that weâ&#x20AC;&#x2122;ve looked at solutions that are just at the tip of the iceberg. As the iceberg connotes the solutions are far deeper than what we see. The world tomorrow will be driven by people who challenge the status quo, and move forward.

Regards, Amit Kapoor

THINKERS

Note From Editor-in-Chief

Faster. Better. Cheaper.

From the authors of Jugaad Innovation

www.hachetteindia.com

MOST COMPETITIVE

STATES 2015

See the states of India through numbers

Institute for Competitiveness in association with Mint brings to you a detailed study that measures the performance of Indian states across several socio-economic parameters. Most Competitive States celebrates the achievement of those States â&#x20AC;&#x201C; growing economically, developing socially, strengthening environmentally and are building new avenues of development.

Reflect the ability of states to utilize their factors of production to gain optimal output

For more information, visit www.competitiveness.in or contact Amit Kapoor | amit.kapoor@competitiveness.in