Author Archives: Admin

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Putting Psychometry in perspective

Category : Miscellaneous

Can psychometric tools predict someone’s success or failure in a job or leadership roles? Can these tools “measure” human behaviour? What is the “Unit of Measure” of human behaviour? Distance is measured in kilometres, volume in kilolitres, speed in kilometres per hour and weight in Kilograms. How could behaviour have calibrated measures like these?

Human behaviour is indeterminate and is a response to stimulus from the environment. Its frequency, strength, volatility or stability, flexibility and above all its impact cannot be measured, because we have not yet designed a calibrated scale.

Informed professional will challenge me by referring to the Rensis Likert’s scale. However Likert’s scale at best delivers broad judgment not measurement. When more than one person responds on this scale about the frequency, strength, volatility or stability of someone’s behaviour the scale helps estimation and not measurement, because no 2 persons’ experience of another person’s behaviour can be consistently recalled and reported accurately.

The other issue with the measurement logic is the scale used for measurement has to be calibrated. This means every point of measurement can be measured finitely, for us to arrive at a quantitative value, whose variance is within acceptable range, irrespective of who measures.

Let us take an example:

He/She understand’s the unexpressed motives of others.

Always     Most of the times     Sometimes     Rarely     

In a calibrated scale the distance in terms of measurement value between two measurement indicators on the scale has a fixed value or proportion. In the scale above, how fixed are the measurement values between say “Always” and “Most of the times”; “Most of the times” and “Sometimes”. Is it “one unit” between “Always” and “Most of the times”; “One unit” between “Most of the times” and “Sometimes” and “Two units” between “Always” and “Sometimes”? Always or Most of the times and Sometimes cannot have a fixed numerical value. It is different to have a scale “100 times in a year”; “50 times in a year” and “25 times in a year”.

Likert’s scale notwithstanding, we do not yet know how to measure human behaviour. We can confirm at best presence or absence with some degree of frequency and strength estimation. This is like estimating and not measuring the size of a room. We estimate not measure, when we say: Very big, Big and Small.

When the outputs from these instruments are presented as quantitative numerical values such as indices or normative values, you should take it with more than a pinch of salt.

Can psychometry predict job success or leadership success with any degree of predictive validity or reliability? For making valid predictions between one’s behaviour and an outcome, we need to be certain about the following:

  • That direct not surrogate outcome indicator connect a particular behaviour to the specific outcome. Performance or talent ratings which are surrogate indicators will not meet the muster.

  • That a particular behaviour is not merely related to a particular outcome but is the driver which causes the outcome. Hence correlation will not suffice. Correlation only tells us that when this behaviour is present a particular outcome is also present, but not which causes which. Fever and infection are related but it does not tell us what caused the infection.

  • That a particular outcome is not caused by any other behaviour.

  • That a particular behaviour only when present with some other behaviour or only when not accompanied by some other behaviour causes the particular outcome. Like care should be present with faith in other’s ability without competitiveness for nurturance to be the outcome.

  • That a particular behaviour is not context specific and universally independent of any contextual factors that causes the particular outcome.

  • We have to precisely know how much magnitude of frequency or intensity or stability or flexibility of behaviour is necessary to cause the particular outcome. Like for copper to melt there is a certain temperature required and at that temperature some other metal will not melt.

    All these have to be tested and empirically established through longitudinal study with the same set of people, in pre-set contexts, where there is no other potential interference. How long should the longitudinal period be? How many people should be studied? How do we control and isolate the contextual factors? All these become critical before we can claim that we can predict job, role or leadership success based on a set of behaviors.

    My proposition is not that we should rely on our current subjective judgmental approach and not use any tool. We currently blindly use behaviour profiling tools for behaviour measurement and prediction. We irresponsibly use it for selection and rejection.

    Instead if we accept that profiling tools are not measurement or predicting but decision support data generating tools, we will make the better use of these tools.

    Behaviour profilers are not like pathological tests which are truly measurement based and predictive. They are not photographs of people which accurately capture all the human features. These are at best thumb nail sketches of people. This is like using your hand to check out fever and not a thermometer. These are not calibrated maps but a pencil sketch on a piece of paper showing someone the general route to be taken. Certainly not “Google Maps”.

Profilers will not create confusion whether the person whose profile you are studying has the characteristics of Mike Tyson or Mother Teresa. However it cannot predict that all people with aggressiveness will create Tyson like outcomes in a boxing ring or outside or all people with compassion will end up as the saint like Mother Teresa. More importantly it cannot tell you how much of aggressiveness or compassion creates Tyson or Mother Teresa outcomes.

Aggression and Compassion like all behaviours are in the end neutral; it is the context and the magnitude that determines appropriateness or otherwise.

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A New Lens on Leadership

Category : Miscellaneous

Your leadership calls, and how you interpret opportunities and threats, are influenced by your lenses, which are unique and personal to you

The mighty elephant is hidden inside the wood

The mighty elephant hides the wood

The Creator is hidden inside the expansiveness of the universe 

The magic of Creation hides the expansiveness of the universe

                             — A translation of a verse by Tamil saint Thirumoolar

Each of us perceives the world differently because our brain decodes it differently based on sensory inputs—sight, sound, taste, smell and touch. To make meaning of all this, our brain then overlays emotions on the sensory inputs, followed by another filter—our beliefs. The way we make meaning of the world influences our choices and decisions. It is precisely these perceptual differences that give rise to the many hues of the same thing—our different world views, or the lenses through which we perceive the world.

It is these different lenses that make leaders interpret opportunities and threats so differently. The lens of a leader impacts his perspectives, ambition, risk appetite and orientation to trust. These in turn impact the approach the leader takes with respect to his comprehension and choice of vision or ideology, strategy, innovation, organisation culture and decision making.

Let me illustrate the various ways their lens impacts their decisions.

1. It makes leaders interpret the same context differently and hold it as their personal realities.

To give you an example from the world of politics, see the different approaches of American presidential candidates Donald Trump and Hillary Clinton—and our reactions to each.

Trump, the Republican party nominee, sees a world which is dangerous enough for the US to contemplate building the modern Great Wall and erect an iron curtain that will keep its enemies out (and throw out those already in). He is unable to see this as a wall and a curtain that will also isolate Americans. His idea of America is of a land only for the new “native Americans”, never mind that the US was built by immigrants.

How could Clinton, the Democratic party nominee, be so blind to the “realities” that Trump sees? How could she deny that the US is probably the most hated nation after Rome? Is she naïve not to know that America’s allies want to bite off the hand that feeds them? Is she oblivious to the deep religious and ethnic fault lines across the world and which threaten her homeland? Unlike Trump, she sees hope and opportunity and not fear and despondency. She accepts that the idea of America as envisioned by its founding fathers—that all men are created equal—is still work in progress. Yet she wants “togetherness” and an inclusive America for all.

2. It makes leaders believe that opposite ideas will achieve the same objective.

Before Mohandas Karamchand Gandhi, during all the 2,500 years of recorded history, no group of people were able to evict a foreign occupier without military engagement. A mere decade after Gandhi, even with Gandhi’s example before them, the African National Congress became disillusioned with about 50 years of other means to overthrow apartheid. Goaded by Nelson Mandela, it chose armed confrontation, until it changed its approach again a decade after.

Communist revolutionary leaders like Vladimir Lenin, Mao Zedong, Ho Chi Minh and Fidel Castro sought to obliterate class inequality by curtailing individual freedom. Others have sought the same outcome through free market, free enterprise and freedom of expression.

Many of us extoll the Chinese model of development. Some leaders believe that democracy and freedom can co-exist with development. Some believe that if it comes to a trade-off between individual freedom and development, they will elect the former. Still others believe that it is agreeable, though not prudent, to sacrifice individual freedom in favour of economic development.

These themes play out in other institutions too. For example, some business leaders believe that they need to restrain employees—serving and those who have left—from critically reviewing them or their organisations. They see this as bringing disrepute to the institution. The values they espouse are, all secrets should remain within the family and the family honour is paramount. They put loyalty above freedom of expression and transparency.

A variant of this world view is that any criticism of the supremo is anti-institutional. The belief here is that the well-being of an institution is inextricably entwined with that of the leader, no matter how inappropriate his actions. The institution here can be a nation, commercial organisation, social organisation or a family. How else will we make sense of the RK Pachauri saga and the choices made by the wise leaders who governed The Energy and Resources Institute?

3. It makes us justify something in one context and denounce it in another, without any contradictions in our minds. 

The founding fathers of the US embedded the idea of equality in their constitution and yet were blind to racial and gender inequality and oppression. Sir Winston Churchill and the so-called free world fought for liberty and freedom in World War II when the forces arraigned on both sides were all imperial powers. Before then their unsaid position was “my freedom and liberty is my right while yours is not. I will cling to my imperial holdings, but have ethical and moral objections when some other nation flexes its imperial muscle and threatens my sovereignty”.

Now let us move to the mundane from the sublime.

In the business context the leaders’ lens determines the path to market leadership.

For the leadership of one bank, it is balance sheet growth; that of another is prepared to trade-off balance sheet size for profitability. For one packaged consumer goods company it is product innovation; for another it is cost leadership and pricing power. For one firm the opportunity lies in cross-border business expansion; for another it is maximising growth in the local market.

Their lens also colours how they view competence. For many leaders proficiency in English is the indicator. This makes them blind to the fact that in most commercial organisations success in the junior level of leadership is largely driven by problem solving skills, interpersonal effectiveness and personal drive. None of these have anything to do with proficiency in English. This leads us to exclude a large number of competent people from the consideration set because they are not proficient in English.

In 2007 when my team and I were brainstorming at Kashid near Mumbai, we were bold enough to challenge this lens on competence. That is where the now successful ICICI probationary officers programme was born. During the last eight years, ICICI Bank has inducted around 10,000 youth from the interiors of India, who have turned out to be stellar bankers and more importantly, leaders. All that was required was to challenge and grind our lens to see the world of competence differently. What is interesting is that only a year into their training, all these probationary officers became as proficient in English as the best from any convent educated school.

Similarly, the leadership of many institutions see investment in physical distribution as the most efficient and effective way to expand their reach and improve customer service, while a few see the digital route as the answer. Proponents of the physical channel argue that customer service will be impersonal on the digital channel. Their lens prevents them from seeing the reality that old mothers swear by Skype and Facetime to connect with their children abroad and find the experience as deeply personal and intimate. More importantly, where it comes to the established banks in the world, this lens has made them sitting ducks to be disrupted by the newer banks which swear by the digital channel. The leadership of the established banks is failing to see the irrelevance of a physical branch when less than 10% of the total customer base and almost insignificant percentage of the profitable customers ever visit a branch. Unfortunately the leaders in these banks are hesitant to correct their myopic lens.

How does all of this connect to leadership? In my book, leadership comes into play only when we are seeking to transform/alter/change a status quo. (This understanding of leadership is shaped by my personal lens and many readers could have other nuanced understanding of leadership.)

Like I said in the beginning, a leader’s lens impacts his perspective, ambition, risk appetite and orientation to trust. These in turn impact his vision and strategy.

Perspective is the heart of leadership and our orientation to trust has a significant impact on perspectives—whether it will be narrow and broad.

A hyper magnified (zoomed in) leadership lens leads us to an inductive thought process and a narrow perspective. We seek more and more sensory inputs (data). We are driven by the need for detailing and concreteness. We seek proof that the decision will work. This in turn influences our risk appetite and decision making. A hyper magnified lens is shaped by our orientation to trust. This is dictated by our emotions based on our past experience—such as fear of failure, shame arising from getting something wrong or loss arising out of being cheated. We therefore seek proof before we trust. Proof seeking demands more and more verifiable data.

In contrast, a telescopic (zoomed out) leadership lens leads us to a deductive thought process and a broad perspective. This lens frames a wide-angle picture which connects disparate images and information, and tells a story—of the world as we “want” it to be or we “believe” it can be. This lens influences risk appetite and decision making very differently. A telescopic lens too is shaped by our orientation to trust.

Our beliefs and our emotions impact the way we collect and integrate sensory data. Based our beliefs and emotional triggers, we give significance to certain data, filter out others, morph a few, choose the classification into which it will be put into and the connections that will be made to present us with a story (meaning and comprehension).

Since we are working with the lens metaphor, we cannot limit our understanding only to the narrow or broad perspectives. This is a function of focus. Emotions and beliefs also colour our world view—the Trump or Clinton world view; the Marx or the McCarthy world view; the Gandhi or the Subhash Chandra Bose world view. What we refer to as orientations, is the function of the emotion and belief that overlays the sensory data. That is why machine processed data will go through plain glass and not a lens. When we classify leaders as left or right, conservative or liberal, inclusive or exclusive, optimistic or pessimistic, radical or conventional, we are talking about the colour of our lenses (and the colour of the leaders’ lenses too).

When we use the term ‘bias’ we actually refer to our lens amplifying or diminishing, colouring or distorting certain sensory data. Bias is actually preference for certain characteristics, choices, outcomes or practices. This can become a leader’s default setting. Gandhi preferred non-violence while Bose believed that foreign occupation cannot be removed without armed conflict. Leaders who have an orientation for relationship amplify the positives of customer contact in physical channels and find drawbacks with automated channels by amplifying their impersonal nature. So, bias is not only likes and dislikes for people. Leaders’ approach to strategy, culture, innovation and decision making thus get impacted by the colour of their lenses.

All leadership processes such as vision, choice set of strategies that we arraign, staying inside or stepping out of a paradigm (innovation), and the calls we eventually make are shaped, directed and controlled by our perspectives—narrow or broad, or the colour of the perspectives. Our lens to the world therefore is the key to our leadership fit for a given leadership context.

Without our unique world view, we would all end up making the same choice given a context. The consequence would be that problems and solutions which that one lens cannot comprehend would remain unsolved forever.

If sensory data alone could shape our lenses, we would have been no different from the other animal species. That emotions and beliefs define the nature and character of our lenses is what makes humans special. It is this that allows us to shape the world around us. Is this not the essence of leadership?

This article was originally published on Founding Fuel, on August 12 ’16.

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What’s common to Hitler and company budgets?

Category : Miscellaneous

[The supreme commanders of the four powers on June 5, 1945 in Berlin: (from left) Bernard Montgomery, Dwight D. Eisenhower, Georgy Zhukov, and Jean de Lattre de Tassigny. By December 1944, it was clear that the German war machinery was broken. So, Eisenhower decided to pull his strongest resources into reaching Berlin before the Soviets so that the post-war structure of Europe could be determined by the Anglo-Americans.

Photograph by: Bundesarchiv, Bild 183-14059-0018 under Creative Commons]

The last quarter of every year is epochal for two reasons: one, everyone believes that the world is coming to an end on March 31 and the budgeted numbers that could not be met in the preceding nine months have to “somehow be done” in the remaining 90 days. Two, a fever to make next year’s save-the-world agenda takes hold of us. This is a period characterised by mindless obsession with numbers. I ask you, to borrow from Dhanush’s popular song, “Why this Kolaveri di (murderous rage)?”

We hurtle into this mechanical madness without taking any time to step back and reflect: what is the purpose of this ritual called budgeting? Is it merely to cast numbers and targets for the year, or ought it to be seen as an opportunity to review and put in place an operational plan for the larger strategic intent?

Since almost everything we call modern management practice has been adapted from the practices of the armed forces, I am going to lean on military history to illustrate the true nature and multiple dimensions of budgeting.

How focus on winning a battle cost Germans the war

During the winter of 1944, the now famous Battle of the Bulge, codenamed Operation Watch on the Rhine by the Germans, unfolded in the Ardennes region spread across Luxembourg, Belgium and France. This major German offensive ended with about 200,000 casualties—two-thirds of them from the German forces and the rest predominantly from the American forces.

It appears that Hitler wanted to relieve the pressure arising from the Allies’ dash to Berlin after they had run over France, post Normandy in June 1944. He believed that if he mounted an all-out attack on the weak Allied lines in the Ardennes region and punched through to the Belgian ports, mainly Antwerp, and cut off the Anglo-American forces to the north, he would have a stronger hand during the armistice negotiations.

Some military historians believe that Hitler was delusional in believing that if he won the Ardennes battle and took Antwerp, he could declare the war a stalemate and not a loss for the Third Reich. Germany was being squeezed on the eastern front by the rampaging Soviets and on the west by the Anglo-American forces. Even his own generals were not sure how realistic any of these objectives were.

However, Hitler was driven largely by personal ambition and not the national strategic objectives. As with many self-obsessed leaders, the distinction between the two had long become obfuscated. Hitler at this stage of his life would harangue his veteran generals that it was “Primacy of Will” that made impossible dreams become real, that the impossible could be achieved through the energies generated on one’s own side.

The supreme Allied commander General Dwight “Ike” Eisenhower’s son, General John Eisenhower, recounts the battle in his book The Bitter Woods: The Battle of the Bulge and surmises that belief, devoid of reason, takes charge of an individual’s judgment when ambition, which is not tempered by counsel from others, drives one’s pursuits. He believes that this attitude makes one overestimate the infallibility of one’s own information and judgment and reject all contrarian information and judgments.

When his generals advised digging in and defending at the German borders rather than stretching the lines in an all-out attack, Hitler concluded that they were being defeatist. He disregarded the ground realities, the capacity and capability of the resources at his command, the superiority of the Allied forces, or the fact that Germany was fighting on two fronts.

Pretty sane leaders have erred the same way that Hitler did in believing that “never defend, never withdraw and only attack” is inspirational. Thus, we see “Primacy of Will” all around us, especially with larger-than-life leaders.

By this time Hitler had no air power; the Luftwaffe had been blown out of the skies during the preceding six months. In an all-out gamble, he committed even his reserve forces to Ardennes—all the armour and battle-hardened infantry that had been kept back to fight a defensive battle inside Germany. All that remained as reserve force were 14-year-old untrained children, the Hitler Youth.

[Hitler put all his resources into fighting the Battle of the Bulge, leaving only the Hitler Youth to defend German borders. Ground realities indicated he needed to hold off the Allies at the borders to gain better bargaining power in armistice negotiations.]

Even a new student of military strategy will understand the importance of the reserve force. It steps in to hold the conquered territory. It keeps the fuel, ammunition and medical supply lines open for the attacking forces (all the more pertinent for Germany because with the Luftwaffe decimated, supplies could not have been air dropped). It replenishes the loss in infantry, armour and artillery. Above all, at the decisive moment in battle, it becomes the force multiplier.

Any rapidly moving attack force is vulnerable when there is no force to commit to cover the rear and at least one flank—in this case the all-important southern flank.

If the gamble in Ardennes failed, the German mainland was indefensible, with no force or equipment left to fight a defensive battle to keep the Soviets (on the eastern front) and the Anglo-American forces (on the western front) long enough at the German borders. Only a long battle of attrition on the borders would have given Hitler enough room to negotiate an armistice treaty to protect the sovereignty of the German Fatherland despite losing the war.

 Sight on the main objective

Contrast this with Eisenhower’s moves.

The strategic objective of the Anglo-American forces was to end the European war quickly and get to Berlin before their allies, the Soviets, got there, so that the post-war shape and structure of Europe could be determined by the Anglo-Americans.

By this time it was evident that the back of the German war machinery had been broken.

Hence Eisenhower’s focus was the roads to Berlin and not Ardennes. He knew that the loss of Ardennes may delay the end of the war but was unlikely to damage the core strategic objectives of ending the European war and taking Berlin before the Russians took it. So, Eisenhower put heavy resources into the attack forces moving to Berlin and left the forces at Ardennes with lighter resources to fight a defensive battle should the need arise.

Thus, Hitler was correct in his assumption that the Ardennes and the Flemish region were thinly resourced. However, the central point is, what really was Hitler’s strategic objective and how did an all-out attack in Ardennes support it? Was he fighting to win the war, manoeuvre a strategic negotiating advantage or was it meant to delay the impending Allied push into Germany—and if so, for what purpose? Clarity on this alone would have helped his staff officers set the battle plans with any degree of confidence.

History tells us the meticulous planning Hitler’s staff officers did for the Battle of the Bulge. In contrast, the Allies had only a vague inkling that Hitler may attack in the Ardennes. So on December 16, 1944, when the Germans attacked, the Americans were caught with their proverbial pants down.

Yet in three weeks’ time the Germans would be in headlong retreat, with their forces in complete disarray and having lost men and machinery that would have been vital for defending the fatherland. Hundred days later Berlin fell, the war was over and Hitler was dead.

 Your budget is not an end in itself, but a stepping stone

What are the key lessons from the Battle of the Bulge for us in business?

To start with, let us remind ourselves that what we call business planning is, in fact, the budgeting process. Over the years, budgets have come to represent targets. However, in reality, a budget deconstructs the strategy into executable actions. In that sense it is the operational plan for a given strategy. It largely deals with allocating resources to effectively execute the operational plan. As CK Prahalad wrote, it is also a plan to leverage resources—depending on your strategic objective, where do you need to attack and therefore deploy more? Where will you defend and can do with less?

In business, the thumb rule is, new product launches and markets you want to wrest from competition demand resource superiority. Established, mature markets can be milked with much thinner resourcing. How often do you see budgets making this distinction in resource allocation?

No strategy can dictate only attack on all fronts, with no defensive lines or options to withdraw. If a business leader adopts an attack-only approach, he will face the same consequences that Hitler faced with his approach in Ardennes. A caveat here: no one can really have a plan for withdrawal; it is a flexibility that leaders give their field commanders, lest they foolishly decimate valuable resources.

How much and how long do I commit resources where the result is a foregone conclusion? Can I redeploy a resource to where it will alter the balance of power and the eventual result?

Hence, the obsession that once a budget is set it is sacrosanct, is akin to Hitler’s “withdrawal is superfluous” doctrine. There ought to be room to modify a budget if there is a shift in economic realities or if market conditions for a particular business line or a product have changed. Thus, withdrawal of resources or shifting from an attack strategy to a dig-in and defend strategy or vice versa has to be part of operational planning.

 Blind budgeting and the 2008 crisis

Banks before 2008 went on an all-out attack on all fronts, leading to mounting losses that eroded their capital base. It is wrong to think that only the misadventure into credit derivatives caused the crisis—that was just the last straw on the camel’s back. Pause for a moment and ask what kind of budgeting permitted growing a single product called credit derivatives to such proportions? How can someone budget for this product to grow so much without first developing a deep understanding of what it is? Also ask, what kind of budgeting could have found the capital to backstop the fallout when the world of credit derivatives collapsed?

Let me illustrate with how JP Morgan Chase handled it: After an initial foray into mortgage-backed credit derivatives, the bank pulled back because it concluded that it did not understand the product or the market dynamics. The capital that it did not eventually blow up on credit derivatives helped it win big on other products. Thus, budgets flow from strategic choices and are not number-balancing games. It appears that JPMorgan’s chief executive Jamie Dimon did not believe in the Primacy of Will.

The moral of the stories is, when you budget for something you do not understand and take the result for granted, the budget counts for nothing. Hitler made this mistake at Ardennes and the banks in 2008.

We spend inordinate time and effort in casting numbers without understanding that this may commit us to resourcing that we did not bargain for.

 The little pieces that make up the final picture

The budgeting outcome should answer the question, how will an operational plan and resource allocation best achieve the strategic objectives? It has to be dynamic. It has to be specific to the business line, product and market, and not based on any one doctrine. The growth-obsessed leaders are in a way doctrinal in their approach.

I often wonder: if strategy is for a time frame that is more than one year, how can an organisation’s budget be for one year? Would not a year-to-year budgeting process be disjointed and out of tune with the big picture called strategy? Markets, customers and competition do not change between March 31 and April 1. Is it not strange that we think of budgets in terms of discrete fiscal years and not as a strategy cycle aligned to the number of years for which we may have framed our strategy?

Hitler did not have a final picture of what would signify to him the achievement of his strategy. So he went from one battle to another. However, the Allies were clear about their strategy—the liberation of Europe in the western theatre by pushing back the Germans and the liberation of Asia Pacific in the eastern theatre by pushing back the Japanese.

When the limits of our strategy are unknown to us, very often the planning process becomes the casualty. We call this expansionist strategy. It is impossible for any planner to plan an expansionist strategy not framed in a timeline. Occasional opportunism pays, but the strategy itself cannot be opportunistic. This makes resource planning almost impossible, which is the key to acquiring appropriate capacity and capability to execute the operational plan. Building resource capacity and capability has a lead time, no matter how efficient the institution is. Eisenhower negotiated with American President Franklin Roosevelt and British Prime Minister Winston Churchill, a full 18 months’ time to build capacity and capability for the main European invasion.

During the past 10 years, many Indian businesses pursued an expansionist strategy without knowing their limits; they overreached and found themselves overwhelmed in terms of resources which include people, funding, innovation, access to market and access to and assimilation of technology.

This is what Prahalad pointed out as the risk in going beyond the core competency. You may disagree with him, but ask yourself: is going to Europe to build a steel business wise, when you have not yet achieved global-standard capacity or capability at home? How much leverage of capital is sound when you are venturing into unknown new businesses, where you have no proven proprietary capabilities? Spreadsheets cannot deliver the intended value of acquisitions and mergers.

Where the budgeting process is a formalisation of the CEO’s personal aspiration and not a well-tested output aligned to the institutional strategy, it is doomed to go the way the Battle of Ardennes went for the Germans.

A process of consultation and critique by informed team members is the best way to test any proposition. When CEOs refuse to do this and impose their propositions on institutions, the staff officers will cast great operational plans that look as sound as the plan for the Ardennes offensive, but the result will not be any different. The unfolding saga of Vijay Mallya is a case in point. Sir Charles Miller Smith, the CEO of British chemicals firm ICI Plc, is another case in point. He wanted ICI to become a packaged consumer goods company because he could not become the CEO of Unilever Plc. In the mid-1990s he went on a shopping binge in an attempt to move away from the commodity chemicals business. In the process, the company took on a lot of debt and weakened its profitable core. ICI Plc is long dead and gone.

Equally, where a CEO converts the budgeting process to bilateral negotiation or a browbeating exercise with individual business leaders, without a broad-based acceptance from the other colleagues in the team, it is unlikely to be aligned to the overall organisational strategy. In this scenario it is impossible to leverage resources—the core aspect of budgeting—in a sensible manner.

Eisenhower always had his key generals together when he planned a battle, irrespective of whether they were involved in the battle or not. He believed this balanced out the blind spots each may have had and also prevented an attack-only or defend-only general from running away with his default approach. Yet he always gave the final word to the general who would command a particular battle. No doubt this brought out many serious conflicts between his generals. But this did not deter Ike from conferring with all of them in one room. He had consummate ability to manage their egos and the many conflicts without any danger to the conduct of the war or his relationship with each one of them.

 The key takeaways

So then, the budgeting lessons from the Battle of the Bulge:

  • A budget is only as good as its alignment to the strategy. Budgets are operational plans and not mere targets and numbers.

  • You do not plan a battle at a time; you plan the war and place the battles within the strategic objectives of the war. Budgets have to cover the entire period of the strategy and not be a year-to-year compartmentalised and incremental process.

  • Operational plans and hence budgets cannot be a static arrangement of numbers cast in stone. They have to be dynamic and open to all options. In fact, numbers do not qualify as budgets; it is only a succinct representation of the expectations from an operational plan.

  • A budget counts for nothing when you budget for something you do not understand or when you don’t have capability to achieve it, or when you take the results for granted.

  • When personal ambitions do not get challenged in the boardroom, iconic leaders can unwittingly run amok. This may lead to these leaders using the institution and its resources to further their own ambition, often putting the institution in peril.

  • Any planning process that does not focus on capacity and capability planning in order to leverage resources, is doomed from the start. Further, resource allocation cannot be a democratic process or an incentive to get a business leader to accept your plan. It has to be a hard-nosed plan determined by the strategy.

  • Finally, it is impossible to build capacity and capability for an operational plan that is rooted in an expansionist strategy not placed within a realistic time frame. No expansionist strategy can work without a strong reserve capacity and capability.

So for next year, see if there’s a new way to think about how you lead the budgeting process inside your own enterprise. Perhaps you could tell your colleagues this time-tested story of the Battle of the Bulge. That way, your entire leadership team could develop a shared understanding of why even a seemingly mundane process of budgeting could help you achieve your collective ambitions.

 Disclaimer: This article was originally published on March 8th, 2016, at FoundingFuel. To read it there, kindly click here.

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Research and Analytics: Better Accept With a Pinch of Salt

Category : Miscellaneous

Nostradamus should be the patron saint of the Big Data and Analytics cult.  I say this because we have hardly paused and reflected on what analytics can or cannot do. Despite the warnings from Taleb, Kahneman and Dobelli we have chosen not to take note of their caution on the human proclivity for cognitive biases.

We often overstate statistical coincidences. We confuse predictive analysis with post-facto analysis meant for diagnosis or mere comprehension which is about what happened and not what caused something. We have become foolhardy to assert that we can predict human behaviour without framing it in a context. Elementary understanding of behavioural science should notify to us that leave alone predicting, even comprehending human behaviour without framing it in a context is impossible.

We also do not set up the hypothesis and test it before we declare causal connections. Worse, our quality of data, sampling and data collection is often appalling. I say these of the best analytical firms and teams with whom I have worked with and not of amateurs.

In my 32 years of working, with the occasional exceptions, I have rarely come across analysts and researchers who understand the difference between the 3 types of research:

  • Explorative

  • Descriptive Diagnostic

  • Experimental

The rigour required for each of these is very different in terms of the research design and construct. The statistical methods applied still can be the same for the three but the objective and limitations are where the differences lie. For the purpose of this article I will be using the term research synonymous with analysis, because that is what analysts do.

An explorative research can at best achieve the purpose of gaining hypothetical insights into a problem, extrapolate hypothetically trends and/or isolate a set of few possible not probable causal factors to a phenomenon, which requires deeper and more focused research. Almost all research which is survey type and is based on self-reported data falls into this type.

These are surveys where the respondents offer an opinion, preference, confirm satisfaction or dis-satisfaction, confirm a like or dislike, endorse a person, position or product, articulate a potential buy or sell orientation, promise advocacy, rank a set of subjects or variables on the basis of certain attributes, etc.

In this research, the researcher has no means to determine the authenticity of the response, verify it against behaviour especially future behaviour or intention to act and gather other secondary evidence to corroborate the self-reporting, above all the application of mind and seriousness of response for every surveyed item.

For any business to use exploratory research to make decisions on committing resources, altering the strategy, launching initiatives or products and taking calls on customer/employee behaviour or preferences will be a huge leap of faith. The output from this kind of research is only one step better than broad generalisation.

90% of all the research/analysis, which business organisations rely on, falls into the exploratory research category. 90% of the business managers who thump table on how they only rely on research for decision making, have no clue about the serious limitations of the research design they are trusting.

In a survey and self-reporting type of survey based research, the other serious limitation is the quality of data collection which is dependent on the commitment, involvement, intelligence, grasp, discipline and integrity of the data collector. Incentives offered for number of respondents surveyed further muddies the water.

Where it is an on-line survey the limitation becomes the motivation, commitment, involvement, patience, focus, discipline and application of mind of the on-line respondent. What makes the process of face to face and on-line data collection unreliable is the unpredictability of the rigour with which the response is reported or recorded. This inherent limitation often plays spoil sport with the quality of data.

Where a team is using secondary data, without the knowledge of the source of the data, authenticity of the source, interference and modification carried out on the data (popularly called as massaging data), uniformity and comparability with respect to time of collection, context in which the data was collected, the construct & inherent biases in the various forms or instruments which were used for collecting the data, nature of question which elicited the data etc  seriously degrades the quality of data. It is this kind of data which is often mined and used by analytics teams of most organisations.

Let us examine few examples. One of the main reasons for some banks getting their retail unsecured lending wrong, during the 2004 to 2008 phase was due to the unreal faith, they had reposed in their analytics, to come up with what was popularly called as predictive credit scoring. The same was true of credit derivatives.

The analysts in this case placed extraordinary reliance on surrogate data, to predict the future credit behaviour of the customers, with no reference to future contexts. They believed that white collar employees or those who had savings account with a certain level of balance in their banks will default the least. The irony here is that assumptions were passed off as posits. There was no empirical basis that either of the 2 assumptions will hold true in reality. There was no comprehension that future contexts may not resemble the present context, especially the cyclic nature inherent in any economy.

In fact, business leaders were so flushed with pride about this analytical miracle tool, they made case studies on this and bandied it everywhere. As with everything that is claimed as research, numerous gullible admirers jumped on to this “Credit Scoring Marvel”. The fact that banks are no credit bureaus and have no access to behavioural data beyond their existing customers in their banks, was not grasped by people who otherwise are very perceptive. This kind of analytics was destined for disaster.

Of late we have become even wilder with predictive analysis. We today believe that by sitting in corporate offices and playing computer games with the captive bought out data and mixing it with proprietary data, we can direct our sales force to identify customers in the physical market place. The irony here is that the only thing we know about these people, who currently do not do business with us is based on the dubious, non-standard and randomly assembled bought out secondary data. This kind of potpourri (kichadi) data is riddled with all the limitations that secondary data suffers, which I have detailed in an earlier para.

We should take note that the predictive validity of psephology based on exit polls and weather predictions based on pure observed data is barely moderate. If this does not humble us about playing wild with behavioural data, nothing will.

The same is true in my experience with what are now called as “Employee Engagement Surveys”. The weights that an employee assigns to various factors that have a bearing on him are different and are also transient. The transient nature makes assignment of the weights difficult. The weights are also life stage and context dependent.

When the stock markets are in the middle of a bull run and an organisation’s stock is doing well, most employees will endorse or articulate preference for an ESOP loaded salary mix. Unfortunately these are not year to year reversible decisions. The next year if the bear chill catches the market, the same employee will dis-endorse an ESOP loaded salary mix, which he had endorsed or preferred a mere 12 months before.

The same is true with subsidised loans or company car. When interest is high the study will say loans promote engagement and when the interest falls, cash out would appear in the research as engagement enhancing move.

We also miss that different factors have different thresholds. Let us take for example pride as an engagement driver. The threshold for high endorsement for Pride in one’s organisation is very high. Any endorsement levels less than 85% for Pride is rare. However the threshold levels for Compensation, Equity, Fairness or Transparency in terms of endorsement levels are always moderate. The highest level of endorsement levels for these will be rarely higher than 65%. How would we normalise this rating idiosyncrasy?  How will an engagement study help us to determine what independent variables drives these dependent variables. Worse is how could simple frequency distribution establish any causal relationship?

That we do not ask these questions is shocking to me. Would we accept pathology report if it had these limitations or fallacies?

The same is true with consumer research. When you ask an ICICI Bank customer, who has not experienced other banks for similar products and at the same level of transaction intensity or frequency, to rank ICICI Bank in comparison to say 4 other banks, what insight can this research throw. In a self-reporting survey how would the person collecting data verify, whether the respondent’s reporting of experience with other banks (assuming she has that) is authentic. Research and analysis surely cannot be based on trust only!

In my experience I have seen, when the factor or survey item which has the highest importance to the customer is scored high or low, then the rest of the factors or items in the survey are impacted to various degrees by this. In the survey type explorative research, there is no way to isolate the causality. This is like a lab test which confirms a state of illness but cannot give the doctor any insight into what may be causing it. It becomes a guessing game. We do not see it as a guessing game because we gaze at numbers & tables and convince ourselves that the conclusions flow from them and not our guesses.

The problem with behavioural survey based research is even confirming presence or absence of anything is at best generalised, with no acceptable levels of reliability or validity. Very few researchers in these studies care to report these because during no two successive years the same research design and research structure is used, making comparability impossible. Hardly anyone questions this gross indiscipline in research.

Is it not shocking that business leaders and board rooms gobble up this kind of research as gospel truth or unassailable fact? Donald R. Keough the former CEO of Coca Cola in his book, “The Ten Commandments for Business Failure” narrates when a customer survey revealed that customers wanted Coke to be sweeter, like most analytics devoted businesses, Coke went on to change the Cola formulation and made it sweeter. According to Don, it took Coke a full year to recover customer loyalty and get back on rails. Half-baked analytics had turned Coke into Pepsi!

In the year 1994, we at Brooke Bond Lipton India were enlightened by market research, which said that the Indian market was waiting to explode three fold on premium ice cream consumption. Paying heed to this the organisation acquired every litre of ice cream manufacturing and marketing capacity in India and not satisfied with it set up a global scale ice cream manufacturing factory at Nasik. This is the story of Kwality Walls. 20 years hence, I understand the market is still waiting to explode and the capacities acquired are not fully utilised.

The thrust of the article is not that research and analytics are waste. It is more to caution what kind of research is needed for decision making. Descriptive diagnostic research is a must, whenever we are seeking to establish causality. Experimental research is a must, whenever we are seeking to predict performance or behaviour. This is seriously expensive. Exploratory research can only help you frame hypothesis. Sadly what most global consulting firms purvey is exploratory research. Most consumer and employee research too are exploratory research.

Hence we should be aware that what we get from consulting firms and in-house analytics is hypothesis and not empirical insights. Where any research is not verifiable, when repeated multiple times or has poor causal proof or where performance change cannot be ascertained or verified, such research cannot be the sole basis for strategy change or resource commitment.

Almost no innovation in the world is a product of any analytics or exploratory research. Let me close with a few tongue-in-cheek comments. Check out what Steve Jobs thinks about consumer research and its usefulness for innovation! It took CIA 10 years to find Osama; analytics notwithstanding. Research and analytics in the behavioural area is useful but let us take it with a pinch of salt, when someone tells us that it can predict future behaviour with reliability.

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How Intelligent Are Our Methods of Judging Capability

Category : Miscellaneous

Our understanding of what constitutes human capability is so sketchy that in management and leadership education, very little attention is given to comprehend this. This is strange especially the heart of running any social institution be it commercial or others, is leveraging human ability to make capital create surplus for economic and social progress. Yet we do not have a common understanding of what aspects of human capability drives what kind of performance. So we end up using non-specific, unreliable and inadequate methods to check out human capability. This is like using a thermometer to figure out the performance of the human body. This also makes capability development hit or miss activity.

Let us take a case in point to examine this hypothesis.

Take a look at the selection process to the best B-Schools in the world. The selection process is weighted heavily on the analytical aspects of human ability. It is also loaded heavily on someone’s academic track record as proof of learnability. There is at best a cursory weightage given to emotional and social abilities, almost none to conceptual abilities.  This is despite the central mandate of B-schools being development of a student as an entrepreneur and a leader and not an analyst.

The unstated belief seems to be that for someone to be successful in running social institutions; commercial and others, cognitive abilities override emotional and social abilities. Add to this our unshakable faith that the best verification of someone’s cognitive ability comes from what are popularly known as intelligence tests, which challenges someone’s, numerical, verbal and spatial comprehension & manipulation abilities and are simulated by inducing difficulty by limiting the time.

Thus we conclude that management or leadership success is largely driven by problem solving abilities to the exclusion of others. We also conclude that superior problem solving abilities comes from analytical abilities (logico-mathematical). We also believe that strong analytical ability is a credible predictor of someone’s conceptual and envisioning abilities (perspectives and imagination). So much for our over simplification of predicting or judging cognitive abilities!

We also believe that we have devised a method to judge cognitive abilities in a more reliable and valid manner, hence the method is objective. We also believe that our ability to objectively judge emotional and social capabilities is suspect (the reliability and validity is poorer) hence we will either ignore it or attempt to assess it cursorily. So we will assign lower weightage to emotional and social capability assessment metrics. The fallacy in this assumption by now should be stark to the readers.

Should we not pause and ask the question; which any “logical and analytical” person will ask; when all things are equal, what is the discriminating capability that determines success in business?  Who succeeds more often in say negotiating deals; the cognitively more proficient or the emotionally and socially more proficient? Who succeeds more often when designing a product; the analytically proficient or the conceptually more proficient? Who succeeds more often in coordinating and driving execution of large and diverse teams; the analytically more proficient or interpersonally more suave? The answer to all the questions is complex. We will have to conclude that in all cases, it is a combination, though loaded more in favour of the latter propositions in each of the 3 scenarios.

I know in most commercial organisations if the leaders are Ivy leaguers, they despite their great intellect, oversimplify the definition of human capability predictors, with over reliance on academic marks, specially mathematics and intelligence tests.  The fact is there is no one size fit all judgment method of human capability. Paradoxically, these leaders grossly under value the contribution of their own conceptual, visualisation, emotional and social abilities to their leadership success.

Often oversimplification of a complex phenomenon makes people blind. This has led to these leaders over attributing the contribution of logical and analytical thinking to their leadership success. It is time for us to therefore examine the origins and the function of intelligence tests and put it in context. This is important because for close to 60 years, every organisation has without any application of mind, adopted intelligence tests, as the sole determiner of the human capability required for all kinds of roles.

In early 1900’s the French Government had passed laws requiring all French children to attend school. It therefore became important to identify children who would need special assistance. Faced with this challenge the French Psychologist Alfred Binet along with his colleague Theodore Simon, set out to find what would best predict success in school.

He soon found out that some children were able to answer questions which were that of advanced levels, while few could answer questions only at the level of children younger to them. So Binet and Simon suggested that there could be a measure of intelligence based on average abilities of children calibrated to certain age groups; in a way it was categorising children as par with their age group and above or below their age group. It was a concept based on, what is the mental age development of a child, when compared to her chronological age.

It is important to note that Binet himself did not believe that his psychometric instrument could be used to measure a single, permanent and inborn level of intelligence. He insisted that intelligence is influenced by a number of factors, changes over time and can only be compared among children with similar backgrounds.

In 1916 the Stanford-Binet intelligence tests became the standard intelligence tests in US.  This gave birth to the famous “Intelligence quotient” or the “IQ”. The US army during the 1st World war faced with the challenge of screening candidates adapted this as Army Alpha and Beta tests. The US further used the IQ test to screen new immigrants, as they entered US through the Ellis Island. In due course of time, IQ scores became a badge of honour or should we say brag badge, for the accomplished adults in politics and business.

The irony is that during the last 70 years, all types of institutions have in one way or other been using a variant of the Binet intelligence tests, with no understanding of what they are seeking to predict or judge.

Are they trying to understand the mental age of the prospective recruit? Are they trying to understand the learning advantage or handicap a prospective recruit is likely to have? Or are they trying to judge the probability of success on job; in which case should we not ask which job? We can pardon the B-Schools for assigning higher weightage on intelligence tests because they are at least using it for admission to an academic institute, even though unlike Binet they are using it on adults.

But the sheer misapplication of intelligence tests by commercial organisations is inexplicable. They use this as a socially acceptable tool to reject candidates than predict job success. No wonder that after so many years of use of these tests, there is no credible research to substantiate their ability to predict job success in any industry or any role. As a wicked aside, let me pose a challenge to the ivy-league CEOs who swear by academic track record and intelligence tests, to now take one of these intelligence tests or even GMAT or CAT and check out their scores.

Let me narrate a hilarious story in which I was the protagonist.

At ICICI Bank in the early 2000’s we were using a type of intelligence test designed by a well-known multinational testing organisation. We were using this test to select the first level managers from the B-Schools and laterals.  I was proud that the degree of comprehensiveness and difficulty of this test made it a good discriminator to select the best managers. Then 2 cycles into it, in 2003, Mr.Kamath the then MD & CEO of the bank had a conversation with me. He asked me, how was I sure that this test was not actually losing for ICICI Bank competent managers and selecting the wrong ones? He then posed a challenge to me to administer this test to the top 100 managers in ICICI Bank, Board level and 2 levels down. His proposition was that about 15 to 20 years of track record as successful managers and leaders, got these 100 managers where they have reached in the Bank. We should be able to compare their intelligence test scores and validate whether the test we were using had predictive validity. As they say the rest is history. Out of the 100 senior managers who have built ICICI Bank over the past 15 years, people with outstanding academic track record from the best institutions, only one manager could clear the cut-off we had set for the fresher’s.

Similarly, if we were to administer CAT or GMAT to 100 top CEOs and compare their performance in percentile standing terms with the younger aspirants for B-schools, I have no doubt that 90% of these successful CEOs would come a cropper. If we have such unshakable faith in these tests to predict success in management roles, should we not set up this experiment once to prove their predictive validity for management and leadership jobs? My argument cannot be twisted perversely that CEOs lack intelligence; it is more to substantiate that the tests, we use have no ability to predict what we are seeking to predict; performance and success in a variety of management, entrepreneurial and leadership roles.

This opened my eyes to the blind adoption of intelligence tests to assess ability and also using one size fit all tests, with no proof that they predict performance in a variety of jobs. It helped me understand that we do not have clarity on, what abilities predict success for what job. In fact we do not even have any idea about human capabilities and its link to performance in various spheres of life.

It made me ask, why I was using intelligence tests on adults who have had 2 years in pre-primary, 10 years in secondary, five years in under graduate education. What will I find about them that 17 years of formal education certification does not vouch safe, even granting for all the issues around these certifications?  It was more foolish for me to have used it on Post graduates.Binet and Simon would have disapproved of my foolish endeavour.

More than all this, the clincher is that there is no proven link between intelligence test scores and performance in any job or role as a manager or a leader in any business. There is enough and more evidence that emotional and social abilities in fact are the success differentiators in leadership roles. We have ironically adopted and propagated a method, without applying our intelligence, when we were testing others for their intelligence!

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The Psychology that makes Agreement Compulsive

Category : Miscellaneous

Too much agreement kills the chat.”

John. J. Chapman

Every leader highlights the importance of challenging the status quo. Implicit in this is the virtue of challenging the state of affairs as they are. However, reality has conditioned many not to challenge. The liberty to challenge is perceived by many as the privilege of the high and the mighty. Challenge by the cadre, is taken as disloyalty or even worse rebellion.

Our compulsion to seek agreement and agree, make us view a wide range of discerning human engagements as disagreements. Questioning, challenging, critiquing, seeking proof, making an alternate proposition, pointing out a fallacy in a proposition, highlighting logical inconsistencies etc. are all not disagreements. Yet majority of us see these forms of engagements as disagreement or rejection. This has led to many of us developing a clever way of disagreeing, especially with powerful people; viz couching our disagreement as an innocent question or seeking clarification.

We go to meetings with ideas, proposals, problems and information. Observe the flow of the meeting. Firstly we will Sir or Ma’am the chair endlessly and pretend that all the other assembled people do not count for anything. Second the chair in most meetings lacks the ability to frame issues and facilitate a discussion hence it becomes a dialogue between the presenter and the chair with the others as spectators. Thirdly the presenter is offended when anyone other than the chair was to challenge his propositions. Even worse the chair gets nervous when the discussion between the presenter and his other colleagues in the meeting heats up. Above all every meeting has a “meeting Varna dharma” where the right and primacy of expressing a point of view has a power pecking order. Any interjection by those lower in the power hierarchy is seen and snubbed as, out of turn impetuosity.

Why has agreement become such a dominant need for all of us?

When people agree with our propositions it socially makes us appear endorsed and hence powerful. If the agreement comes from a person powerful the endorsement feels stronger. The corollary is when someone disagrees with our proposition we feel it as a rejection of us. This feeling is worse when this disagreement is in the presence of peers and subordinates. The dynamics is more complex when the disagreement is to a proposition of a powerful person. The powerful person experiences this as a challenge to his authority and feels compelled to reassert and restore the power distance by snubbing the person disagreeing. Geert Hofstede the Dutch social Psychologist, who has studied culture, has identified power distance as an important cultural anchor. Agreements and approvals are huge power pay-offs, because they signify the influence someone has over a group.

Whenever we take an idea or a proposition to a meeting we have invested quite a lot into it. This creates what Daniel Kahneman calls an endowment effect. The endowment effect makes us overvalue our ideas and propositions. Whenever in a meeting others moderate it to what they feel is its appropriate value, we feel devalued. Often variations and modifications which are proposed to an idea or proposition are heard by the endowment effect stricken person as disagreement or worse dismissiveness. An endowment effect stricken leader is very hard to deal with, especially when they invite the members to review their proposition. Very soon the meeting degenerates into a charade of comical endorsements, the few candid reviewers who point out to the inconsistencies or potential consequences, being put into place and the majority embracing the safety of silence.

Many have limitations in generating alternatives and options, when they make propositions. These are one idea or one proposition wonders. They come to meetings with their one proposition. They then feel helpless when in a meeting someone challenges their proposition or points out to inconsistencies. When this criticism or challenge happens, they find themselves resource less to continue the engagement. The same thing happens when people walk into meetings with an agenda and want to use the others to create an illusion of support for their proposition. They become restive and irritated, when their grand design is disrupted by the few well-meaning people, who may want to challenge and examine the merits of the proposition.

This raises the other question on why do people agree with propositions which they do not approve off?

Belongingness is one of our dominant social needs. Security is another compelling social need. At a peer level belongingness drives us to agree with propositions which we disapprove off. With power figures it is more security need (excommunication fear) that drives this behavior. We learn this very early at our homes and schools. It pays to “collaborate,” a euphemism for agreeing with our siblings and class mates. Similarly the dangers of disagreeing with parents and teachers are repeatedly drilled into us by the painful experiences which we carry into our adulthood. Who does not know the value of agreeing to go to a movie, which you do not want to see, only to belong to a friends’ circle? Who also has not experienced the wrath that follows disagreeing with a teacher or a parent? In effect belongingness and security are social rewards we use to manipulate agreements and vice versa. Patronage is a common pay-off for supporting and agreeing with powerful people.

Most chairs of meetings view discussions which do not converge to a preferred end as unproductive. Time management becomes the superordinate objective. Discussions invariably throw up alternate propositions. This has the potential of setting up a debate with the members taking sides. Invariably in most cases the chair finds it difficult to adopt a neutral position or manage the dynamics. Most chairs lack facilitation skills, specially the power oozing chairs. This makes the chair nervous, especially when the tide favors the proposition the chair is uncomfortable with. This is evident when the stakes of a meeting are high, like strategy or budget decisions. The chair also becomes nervous when the discussion disturbs the internal power equations amongst the members. So protecting order becomes the objective of the chair. The chair is willing to sacrifice the discerned proposition, which could have emerged out of the discussion/debate, to maintain order and power hierarchy.

Mr. Satish Pradhan my mentor, 20 years back introduced to me the “Abilene Paradox”. In an Abilene Paradox a group of people collectively agree to a course of action that is counter to the preferences of many (or all) of the individuals in the group. Abilene Paradox manifests when the culture in a group is to suppress ones preference either for protecting group membership (Belongingness and Security) or the message over the years to members has been not to “rock the boat” and be disruptive. Most set piece meetings including board meetings are sure to suffer Abilene Paradox. The tragedy is when the consequences of the decision turn out to be disastrous, the group disowns and distances itself from the consequences, leaving the leader to hold the can – ironical as it may seem. Often this is done as a whisper campaign, while they publicly profess standing by the leader.

In the end agreement needs to be earned by putting all propositions (including the leader’s) to serious examination without any fear or favor. This will be only possible in a culture, where the members do not feel restrained or nervous to speak their mind, especially when responding to authority figures. We can do without the farcical meetings where 95% of the time 99% of the participants idle, see a slide show, hear to presenters and chairs, with no freedom to express their views. Yet we all yearn to be part of this comical socio-drama.

Let me close with a story from “Thiruvilayaadal Puranam”. This is a compilation of 64 stories of Lord Shiva. Lord Shiva once poses a question to his devotee, the great Tamil scholar and poet Nakeeran, “Whether the tresses of women naturally have fragrance?”. Nakeeran replies in the negative. The Lord challenges him and asks him, “Whether even the tresses of his consort Parvathi, does not have natural fragrance?” Nakeeran once again replies in the negative. The Lord is furious and he demands an affirmative answer. Nakeeran holds his ground and states, “Even if you open your third eye the truth will not change”. The Lord out of rage opens his third eye and reduces Nakeeran to ashes. This is where most meetings would have ended in our meeting rooms. However the story goes on, where the Lord realizes his mistake, brings back Nakeeran to life and commends him for enlightening him, the all-knowing Lord and also ensuring that an untruth did not become a truth, because a scholar was forced to bend it, for fear of his life. Leaders like Lord Shiva will create a culture where the members will feel comfortable to challenge the status quo. But where the compulsion to agree reigns supreme, it will forever be plagued by the Abilene Paradox!

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Strategy Retold January 14, 2015 | K Ramkumar

Category : Miscellaneous

All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved.”

– Sun Tzu

Strategy is the term business has borrowed from military. This word has its origins from the Greek word Strategos or Strategia, meaning leading/guiding/moving an army. It became synonymous with military Generalship. The world of politics adopted it in the 19th century to signify out-thinking an adversary, mobilizing & manoeuvring resources for achieving the objective. However, when this word moved into business it has been beset with confusion.

The legendary Hannibal of Carthage in the late 3rd century BC, in his wars against the Roman Empire, understood the awe and shock the cavalry had on the infantry. He knew that forging cavalry as a fighting unit required training of the horses, the cavalry man’s ability to fight mounted as well as dismounted, the horse and the rider to operate as a single unit, the key ability of the unit to hold its tight formation on the gallop, perceptive on the move communication with the horse and the companion riders, ability to break up and reform quickly for the next wave of attack and above all adaption to the terrain. It took the Romans one whole generation to observe and copy it and a generation more to master it. Such is the nature of strategy, which Sun Tzu aptly summarizes in the quote reproduced at the top.

The heart of a strategy:

Hannibal’s objective was not mastery of cavalry. His objective was Rome. He knew that until Rome experienced the military might of Carthage there could be no peaceful and mutually respectful coexistence of Carthage along with Rome in the Mediterranean. Without peace in the Mediterranean there was no commerce. Carthage was a trading and commercial power. Rome a military hegemon. He was clear that his objective can succeed only through an attacking move (strategy). The “heart” of any strategy hence is the choice between attack and defense, in order to achieve an objective. Rome’s response to Hannibal after the rout and decimation at Cannae in 216 BC was unleashing Marcellus and Fabius, called the sword and the shield. Rome realized that Hannibal can be defeated only by combining attack and defense intelligently in chosen battlegrounds. They chose to dig in and defend with Fabius as the General in uncompetitive landscapes and draw out and attack in competitive landscapes with Marcellus as the General.

At Stalingrad Marshal Zhukov chose to defend to the last man to repel the forces of the Third Reich. He quickly followed it up with relentless pursuit and attack of the retreating German Army all the way into Berlin. His objective had changed from protecting Russia to capturing Berlin before the western capitalists, in order to secure a commanding seat on the treaty table for the share of the post war world. The objective is the purpose for a strategy and not the strategy in itself. However, without the appropriate strategy the objective cannot be achieved.

No strategy can be without a clear definition of who the competition is and what the competitive landscape (micro market) is. Europe was not one competitive landscape. It had the British, French, Prussians (Germans), Austrians and the Russians as the major powers. Napoleon and Hitler learnt this bitter lesson by venturing into Russia, when their real adversary was Britain and the competitive landscape was where the British where. A shift in the understanding of the competition invariably shifts the competitive landscape and makes you fight a battle which is not your core objective and in a place where you are unfamiliar. Alternately in a competitive landscape you may choose to attack one competition and defend against another. A choice to attack or defend against all competition and in all competitive landscape is having no strategy at all.

The brain of the strategy:

The Generals understood that the choice of attack, defense or a combination mattered as much on the adversary and the nature of the battle field as on the leveraging and organization of the resources at his command. Thus the “brain” of any strategy is resource allocation. Resource allocation is not an equitable formula, where every regional/regimental satrap gets all that he wants. Every battlefield also does not warrant all the resources. Some needs to be over resourced while others have to be under resourced.

India’s former army chief General V.P. Malik, in a panel discussion at ICICI eloquently highlighted how leveraging the resources at command and optimizing its strike and defensive power is the brain of any strategy. No army ever has had all the resources (people, armament, equipment etc.) it wanted in all the battlefields. Generals who have been celebrated as strategists found a way to organize the resources at their command despite the constraints, shortfalls and even inferiority in capability and achieve their strategic objectives in a given competitive landscape. Prof. C.K Prahalad called it resource leverage.

The case in point is Gnats and Maruts much inferior aircraft winning the war of skies against the Sabers in the 1971 Indo-Pak war. The allies won the Atlantic war against the German submarines by reorganizing their fleet formations and using aircraft to torpedo them. The battle of Britain was won by the invention of radar and not by putting more & more aircraft into the sky. Air Chief Marshal Hugh Dowding in fact grounded the British aircraft, hid them in underground hangers and force multiplied them by using a combination of radar detection and unleashing lethal antiaircraft batteries on the Luftwaffe intruders. He preserved and saved his aircraft for another battle on another day and inside the enemy territory. He defended and conserved resources so that he had resources to attack on a chosen competitive landscape. This became the legendary Dowding system which won the battle of the skies for the British. Air Chief Marshal P.C. Lal, General Malik and Air Chief Marshal Dowding leveraged limited resources as their strategy to achieve their objectives. Technology, ingenuity and strong risk appetite determine the quality and nature of resource leverage. Discipline, tight formation, agile mobility and flexibility of all resources makes resource leverage a force multiplier. A strategy with a heart (attack, defense, combination) without the brain (resource leverage) will be still born.

The body of the strategy:

The “body” of any strategy is its structure. A brilliant business strategist and not a military General taught me what structure in strategy is. In 2002 Mr. Kamath the then MD & CEO of ICICI Ltd. asked me to draw up the structure for ICICI in the post reverse merger state. I promptly did what all of us do; produced an organization structure with boxes and lines and took it to him. He then taught me a lesson that boxes and lines do not make a structure, it is all about defining authority, responsibility and information flow aligned to the output required. He told me that this cannot be presented through boxes and lines. A structure is an arrangement of the resources at your command in the most optimal manner. Any structure has to be aligned to the heart and brain of the strategy.

At Gaugamela in 331 BC Alexander realized that his army was badly out-numbered; was a fifth of the Persian forces, so he used structure to overcome the resource inferiority on the field. He deployed for the first time the novel structure of “refused flanks”. All armies met each other with formations which were parallel to each other. The innovations were limited to where they placed the infantry, elephants, archer and the cavalry on this straight line. But Alexander innovated by refusing to adopt a formation parallel to Darius’s straight line formation. He arranged his cavalry on either flank at a 210 degree angle to the Persian forces and contrary to logic placed the cavalry at the farthest end of this off-set line. This forced the Persians to move the parts of the army facing Alexander’s Cavalry forward faster to engage Alexander’s Cavalry, which refused to charge. This threw the Persian line asunder and Alexander with his commando unit of companion cavalry punched through this gap and went straight for Darius. The rest they say is history.


Like Alexander Mr. Kamath taught me any structure should be a loose, plug and play formation to maximize the resource leverage. He calls it the tight-loose fit: A structure that is tight in its ability & authority structure but loose in its absolute ownership of resources can break and reform quickly when required and respond to the changes in the competitive landscape effectively and with agility. Who commands a tactical formation and who commands a strategic formation is as critical to the structure as much as the structure itself. Hannibal never trusted his cavalry with anyone else other than the lightning Hasdurbal. Similarly General Eisenhower trusted with Patton the command of the third army and with Monty the Infantry. A defensive commander like Monty would have been a disaster when attack was the strategy; which Patton fitted well. There is more to structure than the rigid lifeless boxes and lines; a flexible body with nimble joints obeys the command of the heart and brain better. Any structure which does not marry up combat, support and communication units is destined to fail.

The central nervous system of the strategy:

The design of the Communication system is the “central nervous system” of the strategy. Any field command, fighting a battle only on the basis of information flow from the center, without ability and freedom to collect field level intelligence and act is doomed to fail. The ability to synthesize and marry up field level intelligence with the strategic command supplied information, is the key for the heart and the body of strategy to leverage the brain. Competitive and proprietary knowledge & information always trumps over public information. It is never the map but the insight into a map which makes it proprietary; more importantly communicating this strategic insight to the right field unit at the right time, separates the victors from the losers. Information overload and information complexity often immobilizes even the best strike force. Lack of field intelligence and over reliance on Berlin made the Germans expect the attack at Calais while the attack really came at Normandy. Bluff and misinforming the adversary is as potent an element of communication as decoding the bluff and misinformation by the adversary. Kargil is the result of poor local level intelligence. Breaking the “Enigma” code machine was critical for the allies’ victory in Europe. Pearl Harbor is the classical example of the breakdown of the central nervous system.


There can be no strategy without a credible choice set. Having only one course of action for all competition and all competitive landscape is no strategy. The General’s risk appetite eventually decides the selection of the choice be it the heart, brain, body or the central nervous system of the strategy. The choice is not about the objective but leading/guiding/moving (Strategos) the people to the objective. Strategy bridges the thought-action gap. Every time an institution bemoans on its ability to execute you can be sure that it is because they have not got their strategy right. Strategy in the end is the ability of the leader to conceptualize, design and mobilize the utmost manoeuvrability of the limited resources at his command, by leveraging them.

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Values Sermon: Pause and Reflect

Category : Miscellaneous

Your time is way too valuable to be wasting on people that can’t accept who you are.”

Turcois Ominek (From her book “Masquerade”)

The incessant sermons on values made me risk writing this article. Political, Social & Business leaders, TV anchors, columnists and activists of all ilk, tell us about how they are the upholders of values and those they badger are eroding values.

Let us pause and ask the basic question: What are values? I doubt if many of us do this reflection before we hold forth on its virtues or lament its decline. In very simple construct; Values are strongly held beliefs. Values are complex mix of all the beliefs that we accept as universal and those that are specific to certain religion, ethnicity, nationality and social groups.

All beliefs are initially shaped by influential people whose intent and judgment we implicitly trust, scriptures which we accept as unquestionable and social norms as determined by powerful people/groups/institutions as non-negotiable. The primary social function of beliefs is to provide identity and distinctiveness to us and the communities we belong to. This helps us to norm thought and behavior in the conduct of our life and in the interactions amongst members of a community. It brings order to the community. It makes interactions within the community largely credible, reliable and predictable. Beliefs and therefore values were the early civilizing force. It helped each community to differentiate itself from the others. Distinctiveness is an overpowering human need. Humans are not satisfied in being only physically distinctive from others. We have for 10,000 years sought to be distinctive in our thinking, which defines who we are, how we live and interact with each other. Paradoxically while we seek distinctiveness for ourselves individually and as a community, we simultaneously seek sameness and uniformity for everyone around us. Values help to reconcile this paradox.

Ethnicity and religion were the distinctive identities we invented much before nationality. Both these managed to resolve the paradox of coexistence of distinctiveness and conformity. Ethnicity emerged from our language. Religion emerged from our search for who we are, where we come from, why we are here and why we are what we are. Both these are thought processes at a very high conceptual level. The early masters who could rise above the crowd and shape this thinking, not only for themselves but also for their communities, had very few with equal capability to challenge them. Even when there was a challenge the victor determined which ‘Thought – Belief’ prevailed and which got extinguished. The loser was exterminated or excommunicated from the community, in order to prevent any alternate values defining power center.

Our collective unconscious learnt the dangers of challenging well entrenched beliefs as articulated by powerful people – religious and in later years’ socio-political leaders. Is it therefore any wonder that right up to today, the only people who can hold forth on values, to all other unwise commoners are powerful people: religious, socio-political and now business leaders? The rare commoner who wins the debate over the powers that be then gets assimilated into the power pantheon as a messiah or a saint, who now cannot be questioned or challenged. The most powerful sanction for the beliefs was thoughts revealed by the God, privately to this messiah aka Moses or the Vedas (Apurshi – not authored by men; Anadhi – without a beginning in terms of time; divine). To question or challenge the revelation is even more dangerous, because we have been made to believe, the notion of sin and sacrilege; where the punishment is gruesome – Dante made it vivid in his Divine comedy. The astounding bass relief of the tortures in hell at Angkor Wat and many similar vivid portrayals ensured that revelations are never challenged.

If beliefs are not to be challenged, can strongly held beliefs viz values, be ever challenged. Thus almost all of us believe in the absoluteness of values. We refuse to accept that values in its manifestation are often nuanced. Let us examine a few values for the absoluteness or nuancing:

Honesty and integrity are seen by all of us as the mother of all values. If honesty is absolute and not nuanced, do we see that there can be no place for sensitivity and diplomacy? Do we not scorn at absolutely honest people? Do we not lecture to them that they are disruptive and socially maladjusted people? Imagine being absolutely honest with any of the authority figures in the world and its consequences. Honesty apart from being inconvenient in statecraft, running all types of social and commercial institutions, is also a relationship spoiler in social groups and family. Honesty when not nuanced is harsh and hurtful. No commercial enterprise anywhere in the world has been built on the bed rock of absolute honesty, at all times and in all contexts. So when we talk of integrity we actually are nuancing it, grading it and contextualizing it. My definition of honesty very often is not the same as yours!

Protecting & taking care of the weak and vulnerable in the society is another value which all of us cherish. If we once again see this as an absolute value, we will be ideologically aligning with the ideals of Karl Marx. Marxism is not an economic ideology only; its moorings are in the values of equality, social justice and shared responsibility of protecting and taking care of the hard toiling underdog. When we counter pose against this the value of meritocracy, it is capitalism. Should we not ask when does ambition become greed? These dividing lines are drawn on sand and not etched on stone. We now understand that both when absolute become harsh and impractical. Hence the adopters of both these values are now nuancing their positions. A more disturbing question to all of us is our personal disposition towards the weak and the vulnerable, starting at our own home!

Take for instance our acceptance or otherwise of what is a vice and what is not. Ask those who smoke, consume alcohol or have liberal disposition to marriage and man-woman relationship, whether as an individual they view their orientation under the lens of absolute values or nuanced ones? Are they sinners and to which hell do they descend to, while the non-smokers, teetotalers and the monogamist heterosexuals ascend to which heaven?

Interestingly the monotheistic newer religions moved the discourse on values to dogmatic absolutism. The so called pagan religions or to be more correct the older polytheistic religions were comfortable with the nuanced position on values. I shudder to think that perfectly sane adults believe in the Day of Judgment by the God’s auditor in our after life! If our deeds in the living world are to be dictated by our expectations of fear or rewards in the after world, is it not in itself a sad denouement about our true orientation to values?

We all learn to negotiate our values as we grow into our adulthood. None of us uphold them in its absoluteness ever. Yet we pretend to have not nuanced our values, for fear of disapproval by powerful people and social peers. In my book no two persons ever live out their values in the same manner, though they may profess it to be the same. What & why I value often is different to what someone else does. How could compassion as a value co-exist with eating meat? Yet we know that meat eaters are no less compassionate than the vegetarians. How is it possible for Duryodhana to be faithful to Karna, if he was such a debased person; or for that matter how can we reconcile Ravana the patron of arts and devotee of Shiva, to being the abductor of another man’s wife? Mythologies recognized that we are complex. So to polarize values as noble & ignoble and good & bad is indeed futile. Were the allied forces in the Second World War the saviors of the world or were they the occupying colonists who fought a war not to be colonized by a more powerful aggressor? How did this noble force called Stalinist Russia become an evil one after the war? Did Russia’s human rights violations and pogroms’ against the Jews not disqualify them, to fight alongside the other allies against the satanic Third Reich? What noble values justify the use of atom bombs on innocent civilians at Hiroshima and Nagasaki- places of no military significance? Where and how do we draw the line to determine the good and the bad?

As the Tamil poet Kannadasan said: “When you kill it is sin; but when it is eaten everything is absolved”. The nobility or otherwise of an act is often contextual. A soldier killing a soldier has two sides. If the dead soldier is yours the other soldier is an aggressor but if the soldier who killed is yours he is an upholder of the value of freedom. In the end, values appear noble or otherwise from someone’s point of view. Values are not only nuanced but are relative too.

We all have double standards. The way we live our values and the way we imagine living it; most often the two are at gross variance, even worse is the one we advocate for others to live. This brings us to the question, absolute or nuanced, what is our response when we see someone infringing the values of others? You will find onlookers galore.

It is only when we have the courage & grace to comprehend and stand by someone, whose values differ with ours and help her live by it, we have earned the right to be righteous and to advocate to others what values they should strive to live by. The next time when someone sermonizes to you about the virtues of values; look into his eyes and ask him, when he last stood by someone, who was being attacked for upholding his values. How many of us reflect on a public platform our values conflict, before sermonizing to others about their values degradation? In the end it will serve us well if we pause and reflect from time to time, what are the values we stand for and what consequences are we prepared to accept!

Your beliefs become your thoughts,

Your thoughts become your words,

Your words become your actions,

Your actions become your habits,

Your habits become your values,

Your values become your destiny.”

Mahatma Gandhi

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The World and beyond of Innovation

Category : Miscellaneous

300 years back men of science, believed that disease and pestilence were spread by odour. They could not conceive the existence of microbes, since it was not visible to naked eyes. When Dr. Edward Jenner talked of sterilisation they scorned at him and treated him as a mad man. Early humans were seized to the possibility of the wireless propagation of sound and images through huge distances. These were mythological stories which captured the imagination of everyone. The flight of fantasy was not limited to this, humans in flying machines flying to distant worlds, was also conceptualised as a possibility by the human mind. The majority including the learned received every new idea (innovation), either with scorn or dismissed it as a fantasy. In both these cases the proposer was viewed as an impractical dreamer; worst a mad person; sometimes even a heretic.

The great Tamil poet Kannadasan wrote in an evergreen film song:

He saw the birds made the aircraft;

In gliding fishes he envisioned the boat;

Heard the echo fashioned the radio.”

So everything new (NOVO) came down to the powers of observation, imagination and visualisation. What is “new” obviously does not present itself both in form or function in a manner which is readily recognisable by us. Very few amongst us have the power of observation to penetrate the veil of the present form and envision in it, the “trans-formational” potential. Almost all innovations: transformations; start as flights of fantasy. These are thoughts that challenge what is commonly taken for granted, as limitations or constraints which cannot be transcended.

A conventionalist is limited by his “how trap” and finds the broader perspective of “what else” threatening. Where the conventionalist is a status quoist caught in the trap of proof before the idea, the innovator is an alchemist who is bent upon converting any metal into gold. The conventionalist is satisfied with the readily evident material value, which he is enjoying as delivered by the present form. He is scared that if this is disturbed or rearranged, he might lose the value which he sees as guaranteed. Isn’t a bird in the hand better than two in the bush! The conventionalist is guided by certainty and threatened by the inherent ambiguous and uncertain nature of imagination. The conventionalist is a prisoner of the concrete and tangible: His time frame is here and now and the rules, which are known. Like the uncertain, unknown scares him. He seeks refuge in adapting the labours of another innovator, for to him it is safer to follow than venture out. He is like the cuckoo which uses the nest of other birds to hatch her young ones.

Every innovation is an exploration into the unknown and the uncharted. The ancient mariners overcame the fear of the mythical open ocean monsters and crossed the Atlantic, finding the new world. Similarly the journey to moon 500,000 km up and back by Capt. Jim Lovell on-board Apollo 8, had no map or paved path to traverse. NASA had to endure failure after failure, including losing 3 Astronauts and Capt. Lovell had to make the journey of faith on science and his colleagues, before the “One small step for man became a giant leap for mankind.” Dr. Subbiah Arunan, Dr. K. Radhakrishnan, Dr. Mylswamy Annadurai and the ISRO defied all logic to shepherd Mangalyaan all the way to Mars, on a shoe string budget of one tenth the benchmark and get there in their first attempt. It takes an explorer’s spirit to be an innovator. If the unknown, uncharted and the uncertain do not excite you, it is unlikely that you will embrace innovation. Innovators are path beakers and path finders.

The innovator is like a prospector of minerals. From the traces of mineral deposits on a river bed or a mountain surface, he is prepared to trace it to its source and literally move mountains (miners call it over burden) to unearth the value. His quest does not end here. When he reaches the main deposit, he is undeterred by the fact that the concentration level of the ore is uneconomical to fetch any immediate commercial value. He is prepared to find a process to separate the valuable ore from the rock and the slag and realise the distilled economic value. Whoever said innovation is only ideation. It is also boring, frustrating and often fruitless back breaking labour. An innovator has the strength to dig deep for the uncertain prospect of finding gold. Many innovators are rewarded for this act of faith and hard labour with more than one mineral, when they reach the mineral bed. Our mythology tells us that Lord Vishnu when he churned the ocean found more than the nectar of elixir!

If the early miners were like some of our business leaders who demand the proof of success and ROI to scale an innovation, the world would never have believed that it was worth the while to move mountains and earth, on the proof of traces of mineral deposit. The paradox is that everyone wants the fruits of an innovation. Yet when it comes to backing innovation with investments, some of our business leaders are scared in accepting that for innovation to thrive, the stomach to accept failures is the minimum pre-condition.

I remember arguing with one leader in one of my earlier organisations, on how ideation and analysis do not go hand in hand. I also told him that over reliance on logic in early stage of innovation is a sure bet to get stuck in the paradigm of current set of rules; like gravity precludes levity. Until the rules of levity are gleaned out, levity would have appeared to be irrational and impossible. Yet intuitively even early humans knew that flying should be possible because they saw birds fly. Logic and analysis are convergence processes. It crystallises the innovation during proto typing stage. If used at the ideation stage, which demands divergent process, it kills imagination.

In one of our leadership engagement lectures Dr. Vishal Sikka elegantly proposed that the best test of an idea is proto typing it. He emphasised the futility of over analysing an idea in our meeting rooms. I was awe struck to see my daughter, who is doing her Bachelor course in Architecture, first visualising the structure and then making a mock up model and only thereafter drafting it on her sheet. She then knocked down her first model and built up her new model using her drawings. She once again knocked it down and used better materials and aesthetics. How true is Dr. Sikka’s insight of proto typing as the route to consummating an idea!

Innovators are impatient to proto type but patient to iterate and shape the creation to its full potential. They are patient in nurturing the fledgling infant yet impatient to scale it up and test it for its true value. Paradoxically innovators are no romanticists. They are clinical when it comes to cutting loss and moving on. But no innovator does it without giving his idea a fair chance to flower. Entrepreneurs and innovators have a strong risk appetite. They both are adept in taking the call, on what to back and what to kill and how much to invest. Both are hungry for scale.

I found working with innovators simultaneously awe inspiring and intimidating. I also found them demanding in their expectations and standards. They broaden your thinking horizon. Three years back when I was in a meeting with Mr. Kamath, he suddenly asked, ”Ram how will training look like in 5 years from now. Have you thought about it? Have we fully leveraged technology in training?” Often innovators become the trigger for others to visualise the embedded possibility in the present and fold the future into it.

Let me close with a verse from a great Tamil saint Thirumoolar; he drew the attention of the faithful to god through an allegory:

The rouge elephant (sculpture) hides the wood;

The rouge elephant hides inside the wood of which it is made;

The mortal man diffuses the Universal Almighty;

The Universal Almighty subsumes the mortal man.

The great Michelangelo believed that all his sculptures were hidden inside the marble block. He had to merely see it and liberate it, by removing the interfering material. In the final analysis innovation is more about one’s perspectives. In my book, innovating is as much a spiritual experience as it is a material quest.

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Meritocracy: A Bitter-Sweet Choice

Category : Miscellaneous

In 1984 after completing my Post Graduation, I had rejected a rare campus offer those days, from Mettur Beardsell (current Madura Garments) Ltd. and opted for Hindustan Aeronautics Ltd., a PSU. My uncle who had retired from Bharat Petroleum, a PSU but had joined this company when it was Burma Shell Ltd., a multi-national Private company lambasted me for opting out of what he called a meritocracy and opting for the mediocrity, driven by the need for job security. Having seen both the worlds, I reckon he was convinced that the job-security to reward trade off should be made in favour of rewards.

This was the first time as a 23 year old I heard the word meritocracy. Thereafter since 1990 I have been part of one meritocratic organisation or the other at least that is how we have been conditioned to view multi-national and private organisations. During the last 15 years the term meritocracy has become the buzz word for leaders as well as employees. However, we frame the meaning of this in a convenient manner. In our definition big bonuses, fat increments, accelerated promotions, etc. qualify to be meritocratic. The moment we assign performance differentiation and do consequence management such as no bonus, no increment or even asking those rated low to leave the organisation, it becomes draconian. In my experience, this dichotomy exists not only in the minds of the employees but also in most of the leaders.

Many of us fail to understand that meritocracy is a choice that both organisations and individuals make. It is also important for us to comprehend that the core of meritocracy is the risk reward equation. Until the mid 90’s even in the best multi-national organisation the rewards were more in the form of reasonable paced promotions than highly differentiated bonuses. Thus, the impact of risk reward equation was very minimal.

I can confirm that HLL, ICI and ICICI until the turn of this millennium had very moderate level increments and there was nothing to write home about bonus. The concept of wealth creation through stock options was being tentatively experimented with. The more important part of the equation the risk side almost never manifested, especially for the middle and the senior management. The power of the unions made it near impossible for the risk to manifest with the non-management staff, including the sales force. The only risk was a probationer not being confirmed. All this has changed in last 12 years.

The essence of meritocracy is that outcomes mainly and to a lesser extent competence should be the determiner of rewards and exits. In this definition loyalty, hard work and even discipline counts for nothing. This definition moved the emphasis from effort and potential ability to measurable or verifiable output. Meritocracy borrowed its conceptual moorings from the world of sports such as:

How good are you in relation to the competition?

Did you win or lose? Did you at least outperform your best to date?

How many you scored does not matter? It only matters whether it was one higher than the competition – external and internal.

The bar constantly moves up – Allegorically and literally.

Targets became aspirational; aligned to both institutional and individual ambition. How high was high and how fast was fast, lost its significance. It now only mattered how much further than the nearest competition and how much faster than the peers. The oft told story that you have to only out run your peer to escape a tiger exemplifies this.

The capital markets became the ultimate arbiter of the Corporate league standings and hence the reward to both the owner and the players of the “Corporate clubs”.

The premium for player transfer from one Corporate club to the other started mimicking the sports leagues of the world. Concepts such as, “maximum job value” or the right price for a job became obsolete.

Induction of new vocabulary such as “War for talent” and “Talent management” replaced more moderate corporate terminologies. Suddenly a bank clerk & an electrician were as much talent as a fresher from a B-school or a CEO. Job seekers now reflected this new ethos and started seeing themselves as talent being traded in the talent capital markets, where the value was more the potential (PE Multiples) and upped their ante.

This hunky dory world made people blind to the risk aspect of the equation. As they say nothing comes free in the world. The club that paid a premium to buy you will be impatient for you to deliver. Otherwise like the owners of Chelsea, Man U or Real Madrid the Corporate clubs will also have a revolving door. The one through which you came in as a hero will now beckon you to be thrown out as a failure. David Moyes found it out last month, after just 10 months with Manchester United.

Do we not check out our risk appetite before we decide to invest our money? So why then do we not do so with our ability, which is our capital? Does anyone of us choose to invest in capital markets when our risk appetite is for the safe fixed deposit? Sure the rewards are meagre in FD compared to trading equity. Does any one of us invest in property whose value is much beyond us, by taking loans beyond our ability and court misery? So why then do we do these mistakes when we choose jobs and organisations?

This is where our limited understanding of meritocracy fuelled by our ambition plays games with us. We presume that meritocratic organisations will only shower us with the rewards and the associated risks will not manifest; at least for us. This would have been called a gamble if we had adopted this approach with our investments. As long as the expected rewards materialises we eulogise the organisation but the moment the risks materialise we conveniently find the same policies, which rewarded us faulty. In addition to this we discover new meanings about the value of loyalty. We conveniently forget that it is loyalty that we have traded for reward premium.

It is even more bizarre that we demand loyalty from the institution and want it to be patient and give us more time and opportunity, to get over a bad spell in delivering output. Let us counter pose this expectation with the loyalty which we are prepared to give to the same institution. Most of us become disinterested in our jobs the day we receive and accept an offer from another competing institution. We want to be relieved of our duties immediately, so that we can maximise the new premium which we have negotiated with the competitor. In rare cases where the institution wants us to continue till they find a replacement, we throw a fit and accuse the organisation with which we were associated thus far. So the moral of the story is that there is no place for loyalty in a meritocratic pursuit. We get the loyalty and forbearance that we give.

Meritocracy is a race; it is a competition; its ideal is in pursuit of excellence. The standards that the competition sets are non-negotiable. No point in complaining about how realistic these standards are. You entered this competition by choice and you can exit it if the new changed standards do not agree with your abilities or you will be forced out by the organisation no matter whether you think it is fair or not. Let us say you enrol and qualify to compete in the Tour de France; the premium cycling marathon in the world. This is a gruelling 2900 km over some 22 days meandering through Alps, Pyrenees and the valleys of Europe. The competing field sets the standards year after year. If your fitness, technique and support from the other cyclists in your team are inadequate, the least is you will be eliminated from the competition and the worst is you will have serious injuries, because your muscles will tear and cease. This is the risk in meritocracies. If people chose them only for the rewards and do not day after day take care of fitness, ability and team support they will be punished mercilessly.

The Olympic motto is “Citius, Altius, Fortius” meaning “Faster, Higher, Stronger”. No doubt it is inspiring and even rewarding. But also remember that this is a metaphor of relativity; meaning you are only perceived as good as how better you are in relation to a fellow competitor and your own best performance of the past. Meritocracy demands the triple jump in quantity, quality and consistency.

In conclusion it is important to place meritocracy in context and understand the true meaning before we worship it blindly. This is an ideal everyone has to embrace for wealth, progress and prosperity: Countries, Institutions and Individuals. But its consequences are bitter-sweet. It is a fantasy to believe that only the sweetness will materialise and the bitterness does not exist.

When blind pursuit of reward and when vaulting career ambition overtakes ability, the bitter side of the equation comes to roost. Sometimes breaks the heart. Yes I mean both emotional and cardiac health.

Users, especially leaders beware! Meritocracy promotes excellence, prevents institutions from decay and even makes them last longer yet inevitably leaves behind debris in the form of perpetually anxious leaders and employees, a few destabilised homes (at least temporarily), hurt sentiments and individualism. True these can be mitigated by care and sensitivity, but in the end whether we like it and accept it or not, the core of meritocracy is Darwinian!