Competing for growth

An exclusive entrepreneurs’ roundtable with Ram Charan

Is the world heading towards normalcy? While economies and corporations the world over crave for stability and predictability, they are inquisitive about dynamics of the new normal. What would shape the future of businesses and markets? A recent Ernst & Young survey, “Competing for Growth”, shows that companies across all sectors are expecting the economy to be more competitive than in the past two years. A roundtable of the finalists of the Entrepreneur of the Year 2010 awards with renowned author and business advisor Ram Charan discussed what it takes to compete in challenging times and the factors that will drive growth for companies.

The roundtable began with a discussion on the framework for competing for growth and the fundamentals of business one should follow irrespective of the good or bad times. According to Charan, there are four basics that businesses need to focus on to succeed over time and gain longevity, namely talent, costs, innovation, speed and adaptability. Charan said: “One, no talent means no numbers. It’s the job of the leader to identify, deploy and develop talent, but not many are doing it well. Two, companies need to stay ahead of the curve in terms of costs and cost structures at all times. Three, one cannot wait for home runs in innovation. And four, differentiating on speed and adaptability.” While the four must go on simultaneously, Charan said, he hasn’t come across many companies doing that.

Entrepreneurship has long been linked with risk. Many view the entrepreneur’s ability to take risk as central to the formation of new ventures. But then there is no dearth of examples where entrepreneurs stretch themselves thin to chase growth as opposed to chasing demand. This brings to highlight the role of the entrepreneur versus the professional manager. The second round of discussion focused on the entrepreneur differentiating between ownership and management.

V C Sehgal, vice-chairman of Motherson Sumi Systems, and one of the finalists, said: “I believe there is a process of passing on the baton. The entrepreneur has the ability to set up new ventures — that’s his nature. But he should also pick up people from the professional side and empower them to run the company. It’s important to differentiate between the management and ownership. But then, some entrepreneurs don’t let it go, and stretch themselves quite thin, and that goes against the whole thing.”

Agreeing with Sehgal, M Damodaran, former Sebi chairman, and the head of the jury for the Ernst & Young awards, said: “It is easy to understand that management and ownership are two different animals. The problem is the reluctance of some owners to believe that management is different and it includes large owners, like the government.”

At the same time, Damodaran said, there are many examples where the management is increasingly trying to assume the role of the owner. “This again is not going to work. There are clearly defined responsibilities and if those are played out by people on both sides, you will see the interests of all stakeholders getting addressed.”

Another key topic of discussion was innovation and the readiness of companies to use it as a tool to compete. Are Indian companies up to it? Is the focus only on product innovation, or are companies also looking at process innovation? Moreover, is Indian innovation anything more than labour and economic arbitrage? These were some of the issues raised at the roundtable.

Charan said it’s been only 15 years that the Licence Raj got dismantled and the country is still very young. But, he said, the skill, energy level and drive, all point to an environment for innovation.

He doesn’t believe that innovation in India is only about labour or cost arbitrage, and said: “Genuine innovation is certainly happening. For instance, some non-Indian companies are doing truly innovative work here. They’re here because of the skill and knowledge, and not labour arbitrage.”

Rajiv Mittal, managing director of VA Tech Wabaq, which specialises in water treatment, believes that Indian companies have to be more competitive, though of course, innovation is coming in. “In our business, what we have seen in the West, we can’t replicate it here because India is a very cost-sensitive market. So we are all the time, whether it is processes or products, innovating from a technology point of view. We are also working on the cost side so that we can bring in a differentiator with respect to our competitors from abroad.”

Rajiv Memani, CEO and country managing partner, Ernst & Young India, said currently the biggest reason for Indian companies to look outside is competitiveness. “In terms of value, the largest chunk of transactions has happened to build competitive supply chain. Access to resources seems to be the biggest priority right now. The second biggest reason is, of course, access to new markets.”

Another finalist, Sameer Manchanda, chairman of DEN Networks, a leading cable TV company reaching over 10 million homes, said: “Scale is everything in our business. If you don’t have scale, it is going to hit your profitability. A company like DEN which is in a highly competitive business can only succeed if it has the scale, is price-sensitive, makes the right margins, and still provides a differentiator.”