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Star from the South No sanmarg for flat buyers... Worst decisions of Indian companies Reform funding political parties Focus on quality and continuous improvement Surge and purge
 
Worst decisions of Indian companies
A team of Editors from the US magazine Fortune led by former MIT professor Verne Harish has discussed 18 such decisions in a book titled, The Greatest Business Decisions of all Time.

One may disagree if they are really the greatest decisions. Still they give some useful insights into the art of decision making for our industry leaders. Out of these decisions only one was taken by an Indian company, Tata Steel.

In 1993, J J Irani took the unusual step of laying off people in a company where anyone getting a job got it permanently, not just for himself but also in ‘eternity’ for his family. Tata Steel till then had never laid off employees. However, when the Indian economy was forced to liberalise in 1991 and the Indian steel industry had to face foreign competition, Tatas were forced to take this step. But the way Tatas handled the Early Separation System (ESS) stunned corporate India. ESS was extremely beneficial and at first glance looked very expensive. However, the enormous goodwill generated by the counter intuitive ESS might have helped establish Tatas as an ethically driven company which always took care of its employees.

Of the 18 decisions, I have selected five to compare against what Indian oil industry and Indian economy could have been if only the managers heading India’s public sector oil companies were bold, creative and dedicated as those who took the greatest decisions.

 

Ford model that triggered policy change

In 1913 Henry Ford had successfully introduced the new concept of assembly line to improve the productivity of his workforce. But he had a problem. His annual labour turnover was 370 per cent. The strategy implemented by Ford, called the High-Wage plan, was to double the rate of pay to his employees. His basic premise was that if his workers were paid more than a living wage, they would be able to buy the product they produce and stimulate the economy. Ford’s masterstroke of doubling the wage not only helped his company solve the high attrition issue but also contributed to his success; it also became a major factor to enact the minimum-wage act of 1938 by the US Congress. Some even claim that Ford’s policy triggered a consumer revolution to make the US one of the wealthiest nations.

 

Customers before profit

In 1982, seven people had died from lethal doses of potassium cyanide inserted into Tylenol capsules in Chicago suburb. Most thought that such a calamity would result in the demise of Tylenol and of its producer, Johnson & Johnson. At that time, Tylenol was the best selling painkiller in the US with Johnson & Johnson commanding 35 per cent of the market share. The way its CEO, James E. Burke, handled the crisis has become the gold standard for crisis management. Despite being urged by FBI not to recall the product, Burke decided to pull Tylenol from every shop: it cost more than $100 million. The principle that drove him to take such a decision was his firm faith that the first responsibility of the company was to its consumers and not to its shareholders. It was also the basic principle laid out by the company in 1943 before it went public.  

 

GE-striking a difference

Soon after Jack Welch was made the CEO of GE, he decided to reduce the GE work force by 25 per cent - laying off more than 100,000 - and got the notorious title of Neutron Jack. Simultaneously he decided to spend a huge amount to upgrade GE’s training facility at Crotonville, to produce future leaders to shape the destiny of GE. Today it is called the John F. Welch Leadership Development Center (LDC). Welch’s decision to invest in LDC resulted in training thousands of outstanding managers not only to contribute to the rapid development of GE, but also to lead several other companies. The center also served as a model for other companies to start ‘company universities’ to train their managers. One such outstanding example was by late Steve Job of Apple.

 

Apple-a bite that changed the world

Today by looking at the great success of Apple, which has become the most valuable company, one may think that it must have been such a slam dunk decision to recall Steve Job as the CEO. However, when that decision was taken by its Board it was not that simple. In 1976, Steve Jobs transformed Apple and quickly succeeded introducing the powerful Macintosh. However, in 1985, Steve Jobs was fired by its CEO, John Sculley, the man who ironically was personally headhunted by Jobs himself. But by 1996, Apple was in a rotten state (losing $816 million on $9.8 billion in sales) and its Board had already fired two more CEOs. It purchased a company NeXT promoted by Steve Jobs.  Still getting him elected as the CEO became possible because of the brilliant manoeuvre by Apple’s Board member Edgar Woolard, a former DuPont CEO. As the saying goes, the rest is history.

 

Toyota’s quality revolution

In the 1950s, German car manufacturer Volkswagen was successful in selling small cars in the US. Detroit was not all that keen for small cars. It was in such a lucrative market. Toyota introduced its small cars in 1958. But in 1961, after selling less than 2000 cars, it decided to pull out of the US market. That was because of the poor quality of the cars. Then Toyota decided to adopt the manufacturing philosophy of total quality management with ‘zero defect’ propounded by the quality guru, Edward Deming. Deming promoted the concept that better quality will reduce expenses while increasing productivity and market share. Today, what he was teaching in Japan in the 1950s is a fully accepted management philosophy. Still how many companies are able to implement such ‘total quality management mantra’ even today? In Japan of that time adapting the principles from a foreign country was not that easy. Still, Toyota wholeheartedly embraced the concept, developed a new model Corona and successfully introduced it in the US. Thanks to the decision of following Deming’s principles of quality management, Toyota is among the largest auto companies in the world.

When one studies the greatest decisions of all time, it is easy to argue with the advantage of hindsight that either the management was forced to make the decision that it finally took or it was sheer luck that they took the right decision. It is the same argument that is often given when examples of sound strategic planning are discussed. Let us try to see how Indian managers could have changed the destiny of their companies if only they had the foresight to take such momentous decisions.

 

Mouth-zipped CEOs of oil PSUs

During the last ten years, because of the sheer populist and competitive politics, the energy sector in general and oil sector in particular, has been the victim of unnecessary and costly subsidies. To subsidise PDS kerosene, residential LPG, diesel and petrol, the government has squandered Rs 567,406 crore which could have been used for worthwhile projects in education, water, health and transportation. Why did the CEOs of public sector oil marketing companies fail to stop the political parties from taking such suicidal steps? The current dramatic fall in rupee is mostly because of the accumulated government debt, unsustainable fiscal deficit and mounting current account deficit. The crisis facing the CEOs of OMCs was similar to the crisis faced by some of the CEOs reported earlier. Why did they fail to rise to the occasion?

 

Need for a second rung of leaders

Just like Steve Jobs, N R Narayana Murthy has been brought back to Infosys. Could Infosys have prevented this kind of situation had they trained competent managers like GE did at their Leadership Training Center? Why have none of our companies thought of starting their own universities? In fact, Indian Oil actually had one such Center in the early 1990s. In terms of hardware, it was very attractive. But when it came to the harder part of implementing the training (selecting the right experts or designing the appropriate courses) it failed spectacularly.

How often are our managers in the public or private sectors selected for their leadership qualities? Of course, there are some rare exceptions like the Tata companies and L & T. In the current Indian environment of poor governance, family-owned companies, nepotism, caste-based quota system … one succeeds or fails not because of sound management decision. If one has the right connections in the political arena and mastered the art of ‘educating’ the politicians, then success is guaranteed.  Can we forget these immortal words of Rebecca Mark of Enron who showered more than $60 million ‘to educate’ our politicians? How the all important banking sector of India would have been different if only the then CEOs of the public sector banks had not ‘crawled’ when the loan mela guru Janardhan Poojary asked them to ‘bend’? Why did none of them oppose his hard-brained policy of giving loans which amounted to distributing the banks’ assets?

In the Indian management scenario it will be easier to write a book on the worst decisions of all time.

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