Case Study: The Case Of Hubs And Spokes , Pg 2

CASE STUDY
The Case Of The Classy Mass Banker
Continued..

THE DISCUSSION

''Shivdasani must understand that managing less is better. And Ram must understand that control limits competitiveness'' M. SIDDIQUI
Executive Vice-President (HRD), Nagarjuna Group

The situation Ram finds himself in needs to be viewed from two different perspectives. In its simplest form, it is about balancing empowerment and control. At a larger level, it is about structure, strategies, relationships, core competencies, and core business values. There are also two key issues that Ram must address as part of the solution to his predicament, which revolve around core values and relationships.

CORE VALUES. Those who are driven by a purpose, like the Shivdasanis, are uncompromising about what they believe are their basic values. Those, in turn, drive the strategic vision of the Group. Clearly, Ram has his role cut out for him. He must first ask the fundamental question: why does the SD Group exist? The answer must be fine-tuned into a mission statement. And the strategies of the individual businesses must flow from this. Ram should first identify, sharpen, and provide shape and substance to the core values of the Group's Indian operations.

RELATIONSHIPS. Although Shivdasani expresses a desire not to micro-manage, and to concentrate only on policy-level management, Ram has his doubts. Surely, there is a gap here between intention and action. So, Ram's own apprehensions about having to spend most of his time managing Shivdasani are genuine.

To my mind, Shivdasani's role should be confined to corporate governance. He is there to see that individual companies adhere to the Group's core values. And he should continue to interact with the hub CEOs. This will serve the purpose of keeping them happy. It is only when he interacts too closely and too frequently with them that the SDGMS runs the risk of becoming yet another layer in the Group's organisational structure. Ideally, the CEOs must report formally to Ram-not Shivdasani.

The identification of the hub-CEOs is another important issue. Instead of the CEO of the largest company, the most able CEO within each hub should be designated its head. If necessary, this person should even be shifted to the largest company within the hub as its CEO. Nevertheless, each hub-CEO should report to Ram as should the heads of the individual firms. An advisory position at that level will not work; Ram should be hands-on.

Power games do not recognise organisation-charts; relationships between employees thicken on the basis of the gravitation of power to individuals. Competence-driven gravitation promotes effectiveness, which is functional; power-driven gravitation builds fiefdoms, which are dysfunctional. The relationship between the hubs and the individual companies constituting them, and that between the hubs and the SDGMS should be competence-driven, reinforced by empowerment.

Shivdasani must understand that, sometimes, managing less is managing better. And Ram must understand that the world is running at such a pace that control will only end up limiting the organisation's ability to stay ahead. I do not think he will find the going tough. On the contrary, I believe that a man like Shivdasani will allow a Group CEO operational flexibility, but without compromising on his core values, and without forfeiting his own role as the dominant thought-force behind the Group.

''Shivdasani must recalibrate his personal orientation and style, but Ram should not go overboard in trying to manage him'' MANAB BOSE
Group Director (Human Resources), Tata Group

I'm not sure if Ram is getting into rough waters. But, as he must have already experienced, he can hardly expect the sailing to be smooth. There are several issues that he needs to address up-front. The most serious of them is the fact that the CEOs of the individual firms are well-entrenched in their respective positions. They are well-settled in their comfort zones. Getting them to re-examine their control-space-an integral part of the reforms he has in mind for the SD Group-is, by no means, easy.

True, Ram knows some of the business heads personally, but that does not, per se, guarantee safe passage. There is bound to be resistance (if there already hasn't been), both subtle and substantive. So, he should recognise that the task ahead is uphill, that he is certain to ruffle feathers, and that, at least in the interim, the stress-levels are certain to go up. If there is one thing that can make Ram's task simpler, it is Shivdasani's clear vision about the future of his Group's Indian operations. This provides Ram with a basis for redefining the Group's strategy, and rebuilding its structure.

However, Ram's biggest challenge lies in facilitating his boss' graduation to a new role in the Group. It is noteworthy that while Shivdasani is willing to let go at an intellectual plane, he is unable to do so at the emotional plane. There is only one way in which this dichotomy in mindset-typical of any business entrepreneur-can be rectified. He must recalibrate his personal orientation, and his individual style. But Ram should not go overboard in trying to manage Shivdasani, which he perceives to be his preoccupation as Group CEO.

Managing Shivdasani is a project that can be accomplished in 2 ways. The first is the educational approach. Ram should arrange one-to-one interactions between Shivdasani and a number of management gurus. Exposure to the best management practices is a surefire way of clearing the mental cobwebs accumulated over years of conducting business in the command-and-control mode. He should ensure that Shivdasani understands the negative implications of micro-management, and comes to terms with the new imperatives of change.

The second way is to build systems and processes that, by their very presence, ensure that Shivdasani does not get into the nitty-gritty of micro-management. Infotech is certain to be of great help in this regard. And Ram should deploy it to his advantage within the Group. And this brings us to the role of the Group's Corporate Centre, or the SDGMS.

Its raison d'être is to be the glue that binds the Group's businesses and companies. That is the only way it can add value. This is where the choice of people staffing the Centre is important. The people operating it should be facilitators and coaches. They should not play the role of captains, especially in their dealings with the CEOs of companies who have successful track-records. Their role is to support-not lead.

It is also important for the Centre to focus, from a group perspective, on a few strategic issues. Just six critical issues would do fine: customer value, integrity, leadership, quality, executive education, and globalisation are my candidates for the list. It is imperative for the Centre to light several fires around these themes, across every business group, and develop contemporary, easy-to-implement, best practices, policies, and processes. The underlying assumptions should be regularly re-examined and reiterated. Since it is easy for people to wander away from the basics, the role of the Centre must be to ensure that this does not happen.

''My recommendation is to create a Supervisory Board consisting of 4-5 eminent people from outside, who command respect'' S.K. GUPTA
Executive Vice-Chairman, Jindal Vijayanagar

The restructuring suggested by Ram is not workable, either in terms of the hubs or the Centre. The idea of a hub is, no doubt, excellent. But such a structure will work only in a situation where the individual businesses are not performing to their optimum levels and, therefore, need external support in terms of achieving scale through the sharing of resources, and the exploitation of a common pool of intra-hub facilities. When, however, each of the 15 businesses is doing well, and is in the top league in its category, any attempt to re-group businesses based on synergy would only lead to the destruction of value-not the creation of it. In any case, the concept of synergy is, in my view, over-rated.

Why? It is difficult to ascertain where you can draw the line. Take the Transportation Hub, for instance, which has brought together an automotive unit, which is essentially into manufacturing, and a cargo unit, which is a services entity. They require diametrically-different customer-orientations. True, both facilitate the transportation of people and goods, but can that, per se, provide synergy at the operational level? And, remember, there are no business linkages between the hubs. So, the relationship between any two hubs is no different from that between two business firms.

The question, thus, is: why should Shivdasani need to re-group the businesses at all? They are fine as they are. A hub becomes no more than a management layer that overloads the existing structure, particularly when you have profitable businesses, headed by strong-willed and successful CEOs, who are already delivering shareholder value. In fact, the same rationale holds good for the Corporate Centre.

Ram is certainly getting into rough waters there. Ignoring his reservations about the job he has taken on, it is likely that he suffers from delusions of grandeur. He may even see himself replacing Shivdasani some day. After all, he expects the Centre to have legal sanction as a company under The Companies Act. But Ram simply does not have the professional stature or the personal credibility that the role demands. In spite of his impressive track-record in a PSU, he will be perceived as an equal, not a superior, by the CEOs. The reason, quite simply, is that he is not part of the Shivdasani family. Thus, whether he likes it or not, the persona of Shivdasani is certain to loom large within the Group.

If neither the hub nor the Centre is desirable, what is the alternative? My recommendation is to create a Supervisory Board. Chaired by Shivdasani-and with Ramachandran as the Vice-Chairman-the board should consist of 4-5 eminent people from outside, who command respect and lend credence to the Group by the sheer force of their personalities. The basic mandate of the board should be to ensure good corporate governance, and facilitate good corporate conduct among the Group's companies. The board members and the CEOs could meet for about a week twice a year: at the beginning of the year to set targets, and mid-way to review performance.

Ideally, the board should focus on no more than 4 targets depending on the nature of the business of each firm, and ensure complete operational freedom to the CEOs. It is important that the board should be an informal body without a legal charter. That alone will prevent the CEOs from viewing it as a threat to their existence, and secure their whole-hearted commitment to the board's initiatives.

''Ram should productively involve Shivdasani in a role where his influence is positive rather than negative'' SALIL PARIKH
Managing Partner, Ernst & Young Consulting

Vivek Shivdasani's vision is to head a Rs 250-billion business in India in 5 years. He expects this to possess a strong Group identity, and comprise a collection of profitable, fast-growing businesses. As the man chosen to realise these objectives, Ram needs to address 2 issues: the immediate question of a new corporate structure for the Group, and the on-going concern of liaising between and managing the expectations of Shivdasani and the Group's CEOs. These translate into the following 5 questions:

WHICH BUSINESSES SHOULD THE GROUP BE IN? While each of the businesses is individually successful, there does not appear to be a cohesive structure as a whole. The SD Group is, essentially, a portfolio of businesses-not an integrated conglomerate with a corporate identity. There are inherent benefits in both. Portfolios, typically, provide an efficient way of maximising Return on Equity in individual businesses. Conglomerates may be more appropriate when seeking goals such as corporate identity or specific revenue targets.

Given Shivdasani's interest in revenue- growth-300 per cent in 5 years-Ram should review the Group's businesses. This involves focusing on those that have good growth prospects, the ability to generate excess cash for further investment, and the potential to tap synergies across customers, suppliers, and distributors. The Group should retain businesses where the size of the market, the growth-rate, and its own marketshare are significant. Its portfolio should be analysed through the filters of revenues, profitability, growth-rates, competitive scenarios, capacities, capital-intensity, exit/entry-barriers, government regulations, and its internal capabilities.

Based on the relative position of the businesses in these sectors, Ram can either decide to retain or divest each of them. At the same time, he should focus on synergies to determine which businesses will drive the Group's quest for growth. While these are illustrative insights, my experience suggests that a detailed analysis will yield a portfolio of 6-8 businesses that the Group needs to focus its resources on. He can, of course, base his choice of the businesses to retain by evaluating them from the perspective of growing them through synergies with Shivdasani's international operations, but this is a decision that only the latter and his brothers can take.

WHAT SHOULD SHIVDASANI'S STRATEGY TO CONSOLIDATE BUSINESSES BE? Having decided on the businesses that constitute its portfolio, the next step for Shivdasani and Ram must be to develop a strategy to drive the Group to realise its revenue-targets. Growth through acquisition, at least in the first few years, may well be the best way to accomplish this objective.

WHAT SHOULD SHIVDASANI'S CORPORATE STRUCTURE BE? Grouping individual businesses into categories may be one course of action open to Ram. However, the criteria for grouping needs to be examined in detail. The businesses may be grouped by common customers, suppliers, distribution channels, focus (global versus local), capital requirements, and growth-rates. Each collection may be treated as a SBU, which has the twin goals of revenues-growth and leveraging synergies across its sub-businesses.

Each SBU may have a leader drawn from among its CEOs-not necessarily from the largest company. Additionally, corporate resources, such as Infotech, Finance, and HRD, must be made available to the SBUs. The model can be visualised as a hub-and-spoke arrangement, with different sizes of hubs and spokes based on the desired level of independence from, or integration with the Group.

WHAT SHOULD SHIVDASANI'S ROLE IN THE NEW STRUCTURE BE? Ram is rightly concerned about Shivdasani's role. On the one hand, the latter talks of being just an investor; on the other, he speaks of strengthening the Group's professional management since the next generation is too young to get involved. Clearly, there is likely to be growing family involvement in the Group in the long term. Ram's best course of action may be to productively involve Shivdasani in a role where his influence is positive rather than negative-such as in matters related to strategic direction, corporate governance, and corporate culture.

SHOULD RAM HAVE ACCEPTED THE CHALLENGE? Ram has no experience in most of the businesses the Group is in. Nor has he worked in the private sector. Besides, he has the onerous responsibility of dealing with CEOs who are successful. Thus, he is certain to be blamed for the Group's future failures, but is not likely to get the credit for its successes. Shivdasani is also ambivalent about his own role. So, Ram should first clarify Shivdasani's role, and his performance metrics.

In the ultimate analysis, no business model is permanent. Much depends on individual personalities and events. Ram has accepted the challenge; now, he must understand what the challenges before the SD Group really are.