In this Issue: STRATEGIES FOR THE SPOKEN WEB: GURUDUTT BANAVAR, DIRECTOR OF IBM INDIA RESEARCH
LABORATORY ON THE MOBILE PHONE AS A POWERFUL NEW PLATFORM • WAR AGAINST TERROR: GENERAL
ARJUN RAY ON HOW TO COMBAT THE BIGGEST EVIL OF OUR TIMES • BRAIN MAPPING THE LEADER: MODERN
RESEARCH ON THE BRAIN THROWS LIGHT ON LEADERSHIP BEHAVIOUR
ISB
INSIGHT
spring 09
Winning
Strategies
Indian School of Business
Gachibowli
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India
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from the editor’s desk
Dear Reader,
The ISBInsight now wears a new look. Over the next few issues we will be refining the
design to make it more appealing to you. We are also developing an online version and are
making it easily navigable and attractive to those of you that prefer reading the articles on
screen. Its has been a great experience to incorporate all the suggestions and feedback into
the ‘new look’ of the ISBInsight. I hope you will find what you want, how you want, in this
and the following issues.
This issue focuses on Strategy. It became clear during the high profile Strategy Conference
led by Professor C K Prahalad, how critical and time sensitive organisational strategies
are for handling globalisation successfully. During the conference, about sixty Deans of
Business Schools from across the world got together to discuss strategies for growth. It was
fascinating to discover that Business Schools groom business leaders to handle external
realities but have not had an inward look at themselves and their strategies for growth! We
present the views of a few Deans in this issue.
We received Willie Walsh, CEO of British Airways, at the ISB and had a fantastic discussion
on his growth in the industry as well as the airline industry and British Airways. One of ISB
Professors, Milind Sohoni, is currently doing significant research in the industry, it was
great to get insights from the industry leader.
We have introduced a new section in this issue featuring articles from researchers. We
hope to bring to you industry relevant articles, hot from the researcher’s desk, with new
insights that you can use immediately. I am also pleased to share with you that many of the
ISBInsight’s articles are being featured in ‘Executive Briefing’ – the Economist Intelligence
Unit’s (EIU) online magazine for senior executives. Executive Briefing features articles
from a variety of sources, and is likely to be interesting to you. As always, I look forward to
your feedback, mail me at [email protected]
Bhuvana Ramalingam. EDITOR
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INSIGHT
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contents
14
Features
24 FAIR VALUE ACCOUNTING
Sanjay Kallapur, Professor of Accounting at the
5
ISB, describes the alleged link between fair
value accounting and the financial crisis
26 WHEN GOOD LOOKS KILL
During the ACR Conference at the ISB,
doctoral student from Boston University,
Cover Story
Rishtee Kumar Batra, examined the impact
of visual attractiveness of products upon
5 STRATEGIES FOR THE SPOKEN WEB
14 LEADING PARADOXICALLY
Guruduth Banavar, Director of IBM India
Bala Chakravarthy and Nick Shreiber, both
Research Laboratory, co-authors this article in
from IMD, outline four approaches to resolve
29 WAR AGAINST TERROR
which he concludes that the mobile phone can
organisational paradoxes
Counter Terrorist Operations veteran General
consumers’ perceptions of performance
Arjun Ray, delivered a talk on how to combat
be a powerful new platform for creating a web
of localised and customised IT-enabled services
20 BOLD MOVES IN TOUGH TIMES
in emerging communities
Willie Walsh, CEO of British Airways, in
the biggest evil of our times – ‘terror’.
conversation with ISB Professor Milind
33 FINANCIAL MELTDOWN AUGURS
9 DEANS ON STRATEGY
Sohoni, points out strategies needed to enter
WELL
During a Strategy Conclave at the ISB,
new markets and survive ‘tough times’
Founding batch Alumnus Ramanan SV, predicts
business school leaders from around the world,
that in these recessionary times, it is the small
complemented by their Indian counterparts,
and medium enterprises that are going to
explored how emerging markets can enhance
adopt new technology fast and well
the future of management education and
research
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ISB INSIGHT TEAM : BHUVANA RAMALINGAM, DIPALI GUPTA, LAXMI DEVI PANT,
MONIDIPA MUKHERJEE, SRUTHI KUNNEL, SUNDEEP JAMMALAMADAKA,
TAV SRINIVAS, VARSHAA RATNAPARKE
PHOTOGRAPHY: KASARLA VISUAL COMMUNICATIONS
DESIGN & COVER ILLUSTRATION by TRAPEZE
RESOURCES: LEARNING RESOURCE CENTRE AT THE ISB
PRINTED at KALA JYOTHI PROCESS PVT LTD
INDIAN SCHOOL OF BUSINESS
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© COPYRIGHT, 2007. INDIAN SCHOOL OF BUSINESS (ISB). ALL RIGHTS RESERVED. ALL
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REPRODUCED EITHER IN PART OR FULL, OR ELECTRONICALLY STORED INTO A RETRIEVAL
SYSTEM, OR DISSEMINATED IN ANY FORM (ELECTRONIC, MECHANICAL, PHOTOCOPYING,
RECORDING OR OTHERWISE) WITHOUT ISB’S PRIOR WRITTEN PERMISSION.
Faculty Close up
36 RESEARCH LENS ON HUMAN
CAPITAL
According to Nishtha Langer, Assistant
Professor of Information Systems at the ISB,
for today's businesses, people are the biggest
46
20
assets, especially in the IT domain
Face to Face
46 HIGH POINT IN CONSUMER
RESEARCH
50
37 BRAIN MAPPING THE LEADER
The ACR Asia-Pacific Conference held at the
A discussion on how modern research on the
ISB, led to interactions on consumer research
brain throws new light on leadership behaviour,
issues in the Indian context, and helped
the importance of psychological interventions
develop new frameworks and concepts in the
for developing leadership qualities, and more.
field of consumer study
42 LET A THOUSAND FLOWERS
48 ISIS 2008- TRENDS IN THE DIGITAL
BLOOM
DOMAIN
Darden Professors, Edward Freeman and
A report on the symposium hosted by
50 IN BRIEF
Sankar Venkatraman, during a CEE programme
CITNE, to deliberate on the role of IT
Perspectives from the world of management
on Strategic Leadership, interpreted how the
in enhancing global competitiveness and
practices
financial downturn has changed the story of
economic development, and to discuss current
capitalism and entrepreneurship world-wide
unpublished work and research topics
Knowledge Sessions
In Brief
Book Review
52 BOOK REVIEW
A review of HBS Professor Tarun Khanna’s book
44 STRATEGY IN A FLAT WORLD
‘Billions of Entrepreneurs: How China and India are
The SMS International Strategy Conference
Reshaping their Futures and Yours’
was all about curiosity and collaboration. The
aim was to develop and disseminate insights
on strategic management processes, and create
a new-research eco-system in the domain of
strategy
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Strategies
for the
Spoken Web
A NEW PLAFORM TO ADDRESS USERS CLOSER TO THE BASE OF THE PYRAMID
by Guruduth Banavar, Manish Gupta, Sougata Mukherjea
and Anupam Saronwala
The unique needs of communities closer to the base of the pyramid suggest interesting new services opportunities.
For instance, the mobile phone can be a powerful new platform for creating a web of localised and customised itenabled services by users and for users in emerging communities
IT-enabled services, such as e-banking, e-government,
and e-ticketing are taken for granted by the PCaccessing population of the world, but they are only
the 20 percent minority. The vast and increasing
majority of the world’s population has never used a
PC or seen the benefits of these services. However,
today there is an increasingly pervasive electronic
channel, the mobile phone, by which such services can
potentially be delivered to this untouched population.
The business and technology strategies for profitably
delivering these services are complex. This article
reflects on some such strategies.
One cannot escape two facts, seemingly
contradictory in today's India - the age-old low
penetration of literacy, and the recent high penetration
of mobile phones. People whose monthly salary is a
fifth of the cost of a mobile phone are carrying one
around with them (the mobile is shared with the
family). One milkman we talked to does not even use
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the electronic address book on his mobile, preferring
to dial the number every time. Another young man
plays new-fangled games on his, but does not feel the
need for reading and writing. Economic incentives,
such as the low cost of a text message, relative to a
phone call, have little impact on people of his ilk.
More interesting is the fact that even many
educated people in India prefer to use their mobile
phones for verbal communication rather than written
communication. Perhaps it has to do with ancient
cultural conditioning, from the handing down of
the Vedas and Upanishads by word of mouth, or the
preference of musicians to pass down complex art
forms via vocal schooling. What is clear is that the
spoken tradition is more likely to appeal to the masses
in India than almost the rest of the world.
Services Opportunities
The needs and priorities of communities in emerging
economies depend on various factors, including
income level and profession. While the needs
and wants of the urban wealthy are familiar to the
developed world, the unique needs of communities
closer to the base of the pyramid suggest interesting
new services opportunities.
Information Dissemination and
Collection Services
A primary need of the ubiquitous small and micro
businesses, like plumbers and street food vendors,
in emerging urban environments, is to establish and
maintain strong connections with the clientele in
their neighbourhoods. However, given the lack of
popularity of yellow pages in countries like India,
new kinds of information dissemination services are
needed.
Within rural communities, there is a need to
obtain locally relevant information, like health and
transportation announcements, government updates,
etc., since newspapers may not carry relevant
information for every village. Information collection
and dissemination services are also needed for farmers,
fishermen, and others in the village to get advice from
experts with in a short time. The e-Choupal service
launched by ITC in India, for example, has enabled
economic capacity to proliferate at the base of the
rural economy by providing farmers with farming
know-how and services, timely and relevant weather
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information, transparent price discovery and access
to wider markets.
Furthermore,
because
of
inadequate
transportation infrastructure in developing countries,
it becomes very difficult to reach remote communities.
The problem becomes more critical during natural
calamities. Better collection of public data from
these areas is very important since they may be used
to drive decision-making on the allocation of scarce
resources. For example, better health data collection
can allow district health managers to allocate a greater
share of their budgets to the major causes of mortality
in these communities. Therefore services that
enable easy collection of information about remote
communities will be very useful for governments and
other agencies.
Financial Services
Many people in developing countries lack access
to basic financial services such as savings, credit,
insurance, and money transfers. Most of the
transactions in such economies are in cash and involve
very small amounts. Services supporting the unique
requirements of these types of financial transactions
will be very useful.
A case in the point is M-PESA, one of the
more popular services for developing countries,
offered by Safaricom which is Kenya’s leading
telecommunications company. Currently, only 10
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percent of Kenyans have formal bank accounts, and
M-PESA allows people without bank accounts to
complete simple financial transactions, primarily
person-to-person money transfers. Since the
introduction of the service in March 2007, three
million users have registered, and the service has
been growing in popularity (see http://technology.
cgap.org/2008/06/17/why-has-m-pesa-become-sopopular-in-kenya/).
Accessing the Spoken
Web does not require an
expensive computer, an
internet connection, or the
ability to read and write.
Entertainment and
Social Networking Services
Services that can provide affordable forms of
entertainment for the emotional enhancement of
poorer sections of emerging economies are also
important. Moreover, just as in developing countries,
social networking services that enable people to stay
in touch with their friends, families and people who
share similar interests may also become popular in
the emerging economies.
Technology Drivers
At IBM’s India Research Laboratory, we have been
developing a mobile software platform, called the
‘Spoken Web’, for delivering the above kinds of
services to communities in emerging countries. The
Spoken Web is a network of Voice sites, which exists
and operates on the telephony network rather than the
Internet. Accessing the Spoken Web does not require
an expensive computer, an internet connection,
or the ability to read and write. People can browse
Voicesites by talking with them, and traverse from one
Voicesite to another via VoiLinks, and even conduct
transactions, simply by talking. What’s more, a phone
number can act like a URL in the traditional web,
and one does not need a high end mobile device to
access the Spoken Web, a plain old rotary phone can
do the job.
While the spoken word is clearly preferred in
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societies like ours, human abilities in the visual and
the aural domain differ considerably. This provides
interesting challenges. A human being can process
visual information in parallel, while the aural
information processing is inherently sequential. The
state-of-the-art of various interaction technologies
(touch, visual, speech) will determine the userinterface capabilities. Obviously, creating the right
interface, which combines the complementary
strengths of the various senses, will play a pivotal role
in the adoption and evolution of the Spoken Web.
Business Strategies
The rich set of services enabled by the Spoken Web will
require several different business strategies, ranging
from free public services to premium paid services.
We can envisage a combination of business models
being used in several scenarios, and fully expect new
business models to emerge as the Spoken Web gains
broader adoption. A user of Spoken Web may pay for
services in the form of regular phone calls, through
premium phone calls, or using other mobile payment
mechanisms.
Free Public Services
There is a need for Governments to disseminate
information about their policies and various
programmes to the public at large. The Spoken Web
can complement other media like print, television,
radio, and the world-wide web (www) to reach the
broad population. Besides information dissemination
via voice portals for various departments, the
Spoken Web can be used as a powerful and low cost
mechanism to collect information from the masses,
e.g., census data, health care data, and complaints
about corruption. Overall, considering the difficulties
of reaching out to the masses in a vast country or
region, especially if it has low levels of literacy, various
public organisations can provide effective governance,
at low cost, by offering free public services on the
Spoken Web.
Free Business Services
As enterprises look to penetrate broader sections of
society with their products or services, they may find
it attractive to offer or support free services on the
Spoken Web. This can take several forms:
» Advertisements: Enterprises may advertise their
offerings on the Spoken Web, allowing other
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| VoiceSites | Voilinks | Surf Links | Browsing | Search | Transactions
4129 2265
Voice Site
2226 6333
6875 4319
Voice Site
Voice Site
2500 4217
Voice Site
Voice Kiosk
Voice Site
Voice Site
1256 484 437
The Villager then dials in to the VoiceSite and gets the info he needs in one phone call
service providers to provide useful services,
such as search, news, or information on a
specific topic, that are free to the masses. The
advertisements can include hyperlinks to voice
sites of the advertisers, analogous to the common
practice in www.
» Interactions with customers: Enterprises may
set up voice portals to disseminate information
about their offerings and support interactions
with customers, including commercial
transactions. For example, a restaurant or store
may provide information about their offerings
and promotions, and take orders for home
delivery over the Spoken Web.
Usage Fee Based Services
For services that are deemed valuable
enough, one can expect the receiver to
pay for the services. For example, a person
seeking employment via a jobs portal
(typically for a job where the critical skills
needed, e.g., based on a specific training,
can be concisely defined) or a person
buying/selling an item via voice-based
marketplace can be expected to pay a fee
for posting their entry on the voice portal
or for a transaction.
Guruduth Banavar is
Director, IBM India
The spoken word can provide a
Research Laboratory, one
powerful expression of a person’s identity.
of the eight world-wide
research labs of IBM
This can be the basis of premium offerings
Research.
Co-authors Manish Gupta,
where an individual is willing to pay for
Sougata Mukherjea, and
that expression and even attempt to
Anupam Saronwala are
from IBM India Research
immortalise oneself. Ring tones have been
Laboratory, New Delhi and
Bangalore
a popular offering with mobile phone
Cover Story
users. The personalisation can be taken to the next
level by allowing users to set up personalised voice
sites to showcase their talent (this can also be done on
a public site analogous to YouTube) or to respond to
different callers in a customised manner.
Subscription Based Services
In several scenarios, Spoken Web can provide value
on a regular basis to users, for which the users would
be willing to pay subscription fees to the service
provider. Examples of such services include:
» “Publish-subscribe” services: Traders and farmers
may wish to sign up for a notification service where
they are provided pricing information or alerts
based on changes in the prices of commodities
that they are interested in buying or selling.
» Directory listing and other services: A professional
worker, such as an electrician or plumber, may be
willing to pay for directory listing and additional
optional services (like matchmaking with service
requestors and scheduling) on a regular basis if it
helps them get more business.
In conclusion, the mobile phone can be a powerful
new platform for creating a web of localised and
customised IT-enabled services by users and for users
in emerging communities. New kinds of business
strategies need to be developed to proliferate and
monetise this new Spoken Web. While there still
are some technical and business challenges to be
overcome, the Spoken Web has the potential to create
the same kind of revolution that the original web
created in the developed world.
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Deans on Strategy
ABOUT COLLABORATIONS, QUALITY ASSURANCE, INNOVATIONS AND ACTION LEARNING
During the Strategy Conference at the ISB, Deans of B schools in India, Europe, and USA came together to share
their vision for strategic growth in management education. The discussion generated interesting ideas about how
emerging markets can enhance the future of management education and research. We present the views of four
Deans from leading Business Schools.
We need to develop international
collaborations with other B-schools across
the world because globalisation compels
us to be more appealing internationally.
Shekhar Chowdhury, Director, IIM, Calcutta
Public institutions like the Indian Institutes of
Management (IIMs) which are under the control
of the Government of India cannot introduce
changes easily. The IIMs, particularly in Calcutta
and Ahmedabad, were established around 1964
in collaboration with the State government, MIT
Sloan and Harvard Business School. Till recently
the Post Graduate Programme or the MBA was the
only programme offered. The Government thwarted
attempts to increase student fees or make any
administrative changes. It also stopped giving grants
for recurring or capital expenditure. In 2003, facing
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a major financial crisis, the management at IIM-C
conducted a diagnostic survey and found a high level
of dissatisfaction with the status quo, along with a
high aspiration for change amongst faculty.
We embarked on a bold, strategic plan for growth
and introduced a one-year, full time residential
programme, similar to the ISB, alongside the
flagship two year programme, and differentiated it by
positioning it as a programme for developing ‘global’
leaders. This being independent of the Government,
gave us the freedom to charge appropriate fees to
generate the funds we so badly needed. In August 2007,
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we launched another one year full time, residential
programme, with a combination of technology and
management. We tied up with the
Indian Institute of Technology
IIT Kanpur and IIT Madras for
professors of technology and also
with the Japanese government
to get professors from Japanese
universities, particularly in the area
of manufacturing excellence. We
introduced long duration executive
programmes and included virtual
learning methods. We also incentivised faculty to
make teaching in executive programmes worth their
while.
Going forward, we plan to continuously upgrade
our programmes with research inputs from our faculty.
We need to develop international collaborations with
other B-schools across the world because globalisation
compels us to be more appealing internationally.
Business schools have to develop virtual education
in a big way and have to collaborate with ‘corporate’
universities to make management education more
accessible to working executives.’
Shekhar Chaudhuri,
Director, IIM Calcutta
Emerging market issues will be the dominant
interest as there are new, interesting and
replicable lessons to be learnt
M Rammohan Rao, Former Dean, ISB
The ISB has successfully ushered in several new
paradigms for business education in India. The one
year management programme, a focus on international
quality research, an emphasis on emerging market
issues, competing globally, admitting students with
prior work experience – these are now trend-setters
for Indian B-schools, and in the next ten years is
likely to become the norm.
Research in India has so far been internally
focused, limited to publishing in Indian journals
alone. With Indian industry, especially the software
industry, demonstrating the benefits
of global recognition and the
capability of competing globally,
Indian B-schools will gradually
increase their participation in high
quality research and begin to publish
in top quality international journals.
Emerging market issues will be the
dominant interest as there are new,
Rammohan Rao,
interesting, and replicable lessons
M
Former Dean, ISB
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to be learnt. This calls for best of breed faculty, and
attracting them would require reforms in faculty
compensation including performance based annual
increases in salaries.
Regulatory frameworks have been stifling higher
education in India. Some institutions have dealt with
this innovatively to side step some of the issues, with
‘twinning’ programmes, joint degrees, etc. None of
the premium management institutions in India have a
degree granting status and they have learned to thrive
despite this hurdle. Indian B-schools are likely to seek
global accreditation from bodies such as the AACSB,
EFMD, etc. When regulations get modernised and
WTO agreements in higher education are in place,
higher education in India will go through a sea change.
Collaborations with international institutions as well
as independent, privately funded institutions will be
established, enhancing the quality and reach of higher
education. The Indian government urgently needs to
take the lead in establishing a quality assurance system
and ensure high quality in higher education.
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Leadership is about transformation, about
transforming reality, and B-schools have to
deliver to that challenge
Dean Jordi Canals, IESE, Spain
Today we face not just the financial crisis, the entire
notion of leadership of top management teams, of
the role of the chief executive, are all in crisis. This
has to do with the mission of B-schools, their role
in society and consequent responsibilities, their
model of governance, and how faculty members’
research interest fits in with the interests of students,
companies, and society at large. The assumption
that the sole objective of the firm is to be a profit
maximising unit is a reduction of the real world. CEOs
have to maximise the value of the firm in the long
term, and it is not the same thing as maximising short
term profits or short term market value. Leadership is
about transformation, about transforming reality, and
B-schools have to deliver to that challenge.
B-schools have to face the challenge of being
relevant and innovative in responding to a globalised
world. They have to be able to shape the agenda of top
management teams and corporations to be relevant
to society. They are good at transmitting knowledge,
in training people to have a good command of basic
business disciplines and leadership qualities but they
need to think deeper on developing transformational
leadership capabilities in students. Like medical
schools that impart knowledge, take care of the
practice and at the same time improve the health
standards of society, B-schools have to train students
to improve the economic standards of society.
From an economic viewpoint, the world is no
longer the west. But B-schools are still using models
and ideas that come from the experience of western
multinational companies. In order to tackle these
big economic and social challenges, schools have to
integrate, build new models and theories and test the
hypotheses - across all disciplines, across organisations,
and across countries.
Despite two world wars, and many crises, the
business world has made a lot of headway. The USA
has venerable universities that have been around
for more than a century but in
Europe or in Asia, new world class
institutions were non existent fifty
years ago. New business schools
emerging from countries like
India, China, etc., do not have
the legacy costs associated with
large, established universities or
business schools, hence there is
an excellent opportunity available
to be integrative and develop Dean Jordi Canals, IESE
Business School, Spain
new knowledge that is relevant to
today’s globalised world.
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Although B-schools are in crisis, they
are terrific. They are the most successful
academic enterprises in the last fifty
years by far
Dean Edward A Ted Snyder, University of Chicago Booth school business
If you look at globalisation, and how industries have
responded to that, and compare it with how B-schools
have responded, it is quite shocking. Compared to,
say, McKinsey or Baine, the response of Harvard or
Chicago Booth (CB) or London Business School is
very low. Consequently, the market share of the top
20 business schools around the world is minuscule.
Business schools in this flat world presumably
connote opportunity and an evenness of capability
but this cannot be achieved when they have specific
locations. We do not see globalisation in business
schools, except in executive MBA programmes. CB
introduced the executive MBA programme in 1943.
Recently, it introduced a second node in Europe and
a third node in Asia, amounting to a global learning
system of 270 executive MBA
students interacting with each
other. These students, coming
from industry backgrounds
in various countries, know a
whole lot more than faculty
about what is happening in
mutual interdependence and
rivalry amongst China and
India.
Dean Edward A. Snyder,
Chicago Booth
I have a lot of confidence
in my faculty’s ability to
understand markets and how organisations work at
a deep level. B-school graduates will hopefully work
over the next fifty years, and would encounter things
that the faculty could not have anticipated and a
deep understanding of businesses and organisations
is extremely valuable. However, in a globalised
world, it is equally important to understand what
is happening in the world of practice, and I am not
sure how much our faculty understands that. Faculty
sometimes don’t get out much, they tend to do
research in a way that is consistent with them being
in one place.
B-schools are the ultimate two-sided markets.
We all bring in MBA students and we develop them,
that is the front end of the process. At the back end,
we bring in recruiters. Having diversified students
and recruiters can build an enormous amount of
pressure on the faculty and build in a lot of learning
into our systems.
B-schools are the most successful academic
enterprises in the last fifty years by far. Every year
top Schools around the world have increased tuition
at rates above inflation and have sustained themselves
through various situations. There has been a
phenomenal entry of new high quality B-schools
in the world. Despite all the challenges they face,
B-schools are terrific.
The distinction between research and
teaching or research and education is false.
We lose a lot because of that
Dean Robert Dolan, Ross School of Business, University of Michigan, Ann Arbor
To me, nobody has yet cracked the code on life long
learning. Right now we do big, discreet chunks up
front, and then we send pod-casts to our alumni and
hope they will contribute to the school. We haven’t
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thought much about how to become their go-to
source, as intellectual questions come up for the
rest of their lives. We will see a transformation for
getting out of this discreet transaction mode into a
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relationship mode, which is likely to push faculty in
the direction of the world of practice because without
that we cannot be a force in the lives of our alumni.
For a long time we have existed in generation1.0,
where we have the standard long and narrow classroom
with professor sitting up front and lecturing to the
students. Then we transitioned to generation 2.0 and
got into the distance learning business where we tried
to reach executive students in their homes. In 3.0,
where the Ross School is now focussing, we put our
students out on the field because student learning
takes place in the world of practice. We now have to
figure out what is the right way of reaching out to
students at home or at work, in our classrooms or in
the world of practice.
The distinction between research and teaching or
research and education is false. We lose a lot because
of that. We have to be customising experiences for
our students and have to draw on a broad set of
resources. Resources can come from alumni or from
across different functions. For example, we have joint
degree programmes with engineering Universities
ISB INSIGHT
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and Natural Resources departments. We also reach
out to other kinds of people. We had Robert McKee,
the famous screen writer, teach our students about
story telling. Recently we had poet Maya Angelou.
She instinctively said, ‘business by itself is like one
hand washing itself. But if you take business and the
arts, that’s when things really begin to happen’. While
we have our alumni coming back as teachers, we also
have to reach out to people who have very different
talent sets.
What really makes a transformational leader is
the ability to see opportunities
for innovation. The process
of innovation is different in
different parts of the world.
We need to have opportunities
for action learning, and have
students experiencing innovation
processes in different countries.
We have to find out a way to teach
our students to be courageous Dean Robert J Dolan,
Ross School of Business
and intelligent risk takers.
Cover Story
Cover Story
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Cover Story
Leading
Paradoxically
by Nick Shreiber and Bala Chakravarthy
Corporate leaders face a more complex world - and
must satisfy more competing objectives-than they did
even a decade ago. In order to maintain competitive
advantage, the firm’s product and services must
be differentiated, and yet cost competitiveness
is also paramount. Corporations are expected to
play responsible roles in society, yet demands for
the protection and enhancement of returns to
shareholders are stronger than ever. Top management
must personally vouch for the numbers that their
firms put out, yet it is also increasingly necessary to
delegate responsibility.
Leading a business in the modern world requires
the ability to deal with multiple paradoxes. “Paradox”
is a noun of Greek origin that describes seemingly
contradictory statements which, when explained, are
not contradictory at all. In the business environment,
three aspects of paradox are worth emphasising:
1 Leaders are faced with contradictory demands.
For example, there may be the need to pursue
global growth aggressively and at the same time
contain or reduce business risks. Or there might
be a need to differentiate a firm’s products
and services while at the same time improving
operational efficiency.
Modern leadership requires
the ability to manage things
that appear at odds, but in
fact are not.
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2 Common sense rebels against pursuing these
contradictory demands simultaneously. For
example, if top management tightens corporate
controls and also announces its intention to
increase employee empowerment, it will have to
sell its ideas very convincingly to avoid scepticism
on the part of employees.
3 Many of these paradoxes can be resolved.
Our experience tells us that high-performing
organisations can - successfully - pursue several
seemingly contradictory goals at the same time.
This article is based on two streams of research. The
first originates in practice, and comes from Nick
Shreiber’s career first as a strategy consultant with
McKinsey & Company and then as CEO of Tetra Pak,
one of the world’s leading packaging companies for
liquid foods. He went on to test his insights through
contacts with academic institutions including Emory
University, IMD, and IESE. The second stream comes
from Bala Chakravarthy’s research on leadership
dilemmas, which has been conducted over the course
of ten years, first in the information communication
industry and through field research in the chemical,
energy, pharmaceutical, food, and retail industries
(see Chakravarthy 1997, Chakravarthy and Lorange
2007, for more details of this research).
Resolving paradoxes requires not so much
common sense as uncommon sense - the knowledge
that apparently contradictory demands can still be
met. This certainty has to originate from the top.
As some experts put it: “Followers want comfort,
stability and solutions from their leaders. But that
Cover Story
is baby sitting. Real leaders ask hard questions and
knock people out of their comfort zones. Then they
manage the resulting distress” (Heifetz and Laurie,
2001). The resulting tension often provides the spark
that leads to a creative solution.
However, creating stress is not enough. Corporate
leaders must do four key things in order to resolve
organisational paradoxes: (1) frame the challenge
creatively, (2) balance the organisational context, (3)
offer thought leadership to produce solutions, and (4)
provide moral guidance to the organisation.
Creative Framing
A useful way of managing paradoxes is to find a
creative way to frame the challenge. Paradoxes can be
daunting. The trick is to embed one of the competing
goals as part of the context, and offer the other as the
primary goal to be served.
Consider the example of Best Buy, the North
American consumer electronics retailer. Its CEO,
Brad Anderson, introduced a new vision for the
company a couple of years ago, seeking to make Best
Buy one of the first companies in retailing to be truly
customercentric. The underlying idea was to target
the most profitable customers for the company and
increase the company’s share of their spending. The
other goal of customer-centricity was to enhance
value for the firm’s shareholders.
On the face of it, customercentricity does
not necessarily translate to better returns for the
shareholder in the short term. For a discount retailer
like Best Buy, managing inventory turns is very
important. Customer-centricity, on the other hand,
could lead to the holding of more stock-keeping units
and slower inventory turns. Besides, both the cost of
store fixtures and added employee training that were
needed to support customercentricity could hurt
store profitability in the short run.
While employees in the customer-centric stores
IN B R IE F
›› Modern business leadership requires the ability to deal
with paradoxes – that is, things which appear to be
contradictory but in fact are not.
›› Creative thinking can help overcome the problem of
paradox and resolve apparent contradictions.
›› For example, creativity requires both innovation and
discipline – it is not a question of either/or.
›› Balancing competing demands is a key aspect of
modern leadership, and all aspiring leaders must
develop the skills to do so.
Cover Story
were given a simple goal - delight customers - the
organisational context that they were placed in,
helped focus attention on the other goal, creating
value for shareholders. Through careful analysis, the
company had identified seven profitable customer
segments. Each store was assigned one or two of these
customer segments to focus upon, as appropriate to
the demographics of the markets that they served.
Serving these customer segments would enhance
store revenues and profitability. Best Buy also put in
place a control system that measured the return on
capital invested in each of its customercentric stores
on a daily basis. Employees were trained on the basics
of how shareholder wealth was created.
Customer-centricity initiatives that helped
improve return on capital employed were thus readily
identified. While employees were urged to delight
customers, top management had ensured the targeted
customers would also be profitable customers. This
helped employees recognise that shareholder value
can be enhanced while delighting customers at the
same time. Asking employees at Best Buy to be
creative in serving the needs of their customers was
very energising and inspiring. Simply asking them to
add value for the company’s shareholders would have
been far less appealing.
Thus the two goals, delighting customers and
adding shareholder value, may appear contradictory,
but in reality they are not. By creatively framing this
paradox, Best Buy has been able to improve employee
empowerment, customer loyalty and return to its
shareholders all at the same time.
Balancing the Organisational Context
The tension between functions and processes within
an organisation provides another source of paradoxical
discomfort that can be addressed through good
leadership. It is often debated whether a company
organised along functional lines can embrace crossfunctional business processes. The way to frame this
paradox is to understand that well-run functions
are absolutely essential to a business; they are the
sine qua non that provide the capabilities for the
smooth operations and intra-functional learning
without which a company cannot operate. Functional
excellence is part of the operational context of a
company, and senior executives should focus their
energy on cross-functional business processes that
will enable functions to work in an integrated and
efficient fashion across the company - in a way that
functions on their own could never achieve.
Processes improve efficiency and service quality
by documenting and spreading best practices around
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a company. Thus they avoid the infamous re-inventing
of the wheel. And process improvement can reach into
every corner of a company, from improved factory
floor operations to better corporate governance.
Many companies’ initial failures to bring processthinking into their organisations can be traced to the
lack of visible commitment by the CEO and senior
leaders, or to their own confusion regarding whether
priority is placed on functions or on processes.
Process leaders must be enthusiastically
supported throughout the change programme, and
visibly rewarded when successful. The CEO and
senior leaders in a traditionally functional organisation
that is moving towards a process orientation are not
“just” introducing new ways of working and modified
organisational charts. Often, they are fundamentally
altering their companies’ corporate culture, and they
must act accordingly.
The paradox of function versus process can be
resolved with five key actions that ensure alignment
between functions and processes: (1) Appoint process
leaders who are recognised as high-level, respected
individuals. Because they exercise authority over
people not under their direct responsibility, process
leaders should be vested with “informal authority”-
THE PARADOX OF CREATIVITY
VERSUS DISCIPLINE
1 Ensuring the
3 Time bomb
Creativity
future
5 No man’s land
2 Boomerang
4 Mine field
Discipline
1 ENSURING THE FUTURE
•
Continuous flow of new ideas
•
Losers weeded out early
•
Many high-impact winners
2 BOOMERANG
•
Over-structured process stifles creativity
•
Tight cost control, but few real innovations
3 TIME BOMB
•
Plentiful new ideas, but resources
spread too thin
•
Missed opportunities due to lack of focus
4 MINEFIELD
•
Wheel “reinvented” every time – resources
spent on administration
•
Priority-setting defaulted to most vocal managers
5 NO MAN’S LAND
•
Paradox recognised but not resolved
•
Can drift into boxes 2, 3 and 4
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Spring 09
The leaders of great firms
must embrace the genius
of the “and” rather than rely
on the tyranny of the “or”.
authority based on their knowledge and ideas rather
than on hierarchical seniority. (2) Give the process
leader responsibility over the most critical function
within the process. For example, the leader of an
equipment supply chain process might also be the
functional head of the equipment assembly plants. (3)
Choose appropriate metrics with which to measure
process performance. These must be visible to and
understood by all parties involved in the process,
in order to create true shared responsibilities. (4)
Conduct process audits. These assessments will
ensure compliance, but they will also provide a
forum for dialogue that will improve process design
as well as execution. (5) Ensure functional excellence
throughout the organisation. This will remind the
organisation that it is not about process alone, but
about function as well.
Another myth that pervades many organisations
is that discipline and structure are incompatible with
creativity and innovation. Discipline, it is argued,
is useful to promote productivity, but it smothers
creative work. Skunk works, the “garbage-can” model
of organising, and similar popular vehicles are offered
as necessary to support creativity.
In fact, a disciplined innovation process will
improve the chances of success for new products by
weeding out poor ideas early on and concentrating a
company’s scarce resources on those innovations with
highest potential. It will also focus creativity where it
is most needed: for example, on product design.
An innovation process will also reduce misspent
energy by bringing objectivity to decision making
through the establishment of specific milestones,
Cover Story
where each project is evaluated against an objective set
of criteria rather than “seat-of-the pants” feelings.
While top management should encourage the
generation of new ideas, it should also curb escalating
commitments to failed ideas. A carefully designed
innovation process can resolve this paradox by bringing
together elements of creativity and discipline.
Thought Leadership
Resolving paradoxes usually begins with the state
of mind of an organisation’s leaders. They must
reject the “common sense rebellion” mentioned in
our introduction. To paraphrase from Built to Last
(Collins and Porras, 1994), leaders of great companies
must embrace the genius of the “and” rather than rely
on the tyranny of the “or”. However, a state of mind
will not on its own resolve conflicts. Leaders must be
willing to benchmark their organisations against the
“best in class” and bring proven tools and approaches
to bear, while empowering the rest of the organisation
to do likewise.
For example, many “traditional”
manufacturing managers will tell you that,
in order to reduce delivery lead times, they
must maintain higher inventory levels to
allow greater manufacturing flexibility on
the plant floor. Reducing lead times while
at the same time reducing working capital
appears to them an unsolvable paradox.
The fact is, however, that appropriate
tools, such as World Class Manufacturing
(WCM), can result in both goals being
achieved simultaneously.
Nick Shreiber is
executive in residence at
WCM resolves the paradox of pursuing
IMD, and was formerly
CEO of Tetra Pak and a
conflicting production goals by mobilising
partner with McKinsey
employees and executives at all levels of
& Company.
the company. It gathers individual and
group ideas, solves problems by attacking
root causes, shares best practices across
language barriers by using graphic tools,
systematises work flows and brings order
to the plant floor. WCM gives machine
operators the opportunity to demonstrate
that conflicting goals can be pursued - and
achieved – simultaneously.
A second area where perceptive
senior executives will exercise thought
Bala Chakravarthy is
leadership is on the rare occasions when
Professor of Strategy and
International Management at
they must resolve the paradox of how
IMD, and also holds the Shell
and when to allow for exceptions to
Chair in sustainable business
growth.
an rigorously established core business
process such as the innovation process
described earlier: how to decide whether
Cover Story
certain development projects have the potential to be
ground-breaking ideas, even if opposed by internal
skepticism or unsupportive market research.
Ideas such as Sony’s Walkman or Tetra Pak’s Tetra
Recart package – a carton-based package that competes
head-on with the metal can for solid foods – are
examples of products that required championing by
top management. These situations call for executives
to rely on their judgement shaped by prior experience,
A myth that pervades
many organisations is that
discipline and structure are
incompatible with creativity
and innovation
technical knowledge, the company culture, availability
of financial resources, and other factors. Exercising
this judgement is more art than science. The trick is
to support experimentation, while putting a stop to
experiments that are not yielding desired results.
Outstanding examples of this type of thought
leadership have been seen over the years. The
Nespresso system would not have become a reality
had the CEO of Nestlé, Dr Helmut Maucher, listened
to the pessimistic consumer surveys for the proposed
innovation. Similarly, Dan Vasella, CEO of Novartis,
pushed for the development of Gleevec, a cure for an
extremely rare form of leukaemia, despite commercial
concerns over the small number of patients that would
need this drug. Gleevec had a projected market of
only 6,000 patients per year, but it has reinforced
Novartis’ reputation as a true innovator in the drugs
industry. Long ago, Henry Ford remarked that “If
I had asked people what they wanted, they would
have said faster horses”. The successes of Nespresso,
Gleevec and Ford’s Model T are a matter of record.
Providing Moral Guidance
Another classic paradox is how a firm can enhance
shareholder value while championing its core values.
Are these contradictory goals? They do not have to
be. According to the New York Times (September
14, 2005) companies are becoming more strategic
in their approach to philanthropy, tapping their
particular realms of expertise to make a difference.
When a tsunami devastated parts of south-east Asia in
December 2004, Tetra Pak and some of its customers
provided free water and liquid foods to victims, using
the company’s capabilities in supplying safe and easily
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ISB INSIGHT
transported beverage packages. Tetra Pak spent several
million dollars to support relief efforts in affected
countries, notably Indonesia, Thailand, and India.
This was a philanthropic act that helped save scores of
lives. But at the same time, it also demonstrated the
use of its packages to a segment of consumers who
may not have experienced them before – and received
positive public relations benefits in the process.
Following the tsunami, too, Abbot Laboratories
Fund pledged $4m in healthcare products and
cash; Procter & Gamble provided $1m worth of its
PUR water purification sachets plus cash to partner
organisations to deliver more than 150 million litres
of purified water; Johnson & Johnson distributed
medical supplies throughout the region; UPS, an
Atlanta-based package delivery company, shipped up
to one million pounds of emergency relief supplies
free of charge; FedEx shipped medical supplies to the
region on behalf of several aid groups; and Northwest
Airlines teamed up with AmeriCares to transport
relief supplies. Similar in-kind efforts were reported
in the wake of the terrorist attacks of September 11,
2001, and the Hurricane Katrina disaster of 2005.
In another case, Home Depot and Bell South
teamed up with Habitat for Humanity to help
revitalise neighbourhoods in South Atlanta. Both
companies were helping communities while at the
same time promoting programmes directly related to
their core businesses: do-it-yourself activities and inhome telecoms, respectively.
It would be cynical to suggest that these wellmeaning acts of philanthropy had the devious purpose
of boosting product sales. Rather, they simply illustrate
the positive power of solving a sensitive paradox.
Corporate philanthropy and shareholder value can be
reconciled if a corporation carries out philanthropic
activities that support the long-term strategy and
reputation of the company. This is enlightened selfinterest.
Conclusion
In this brief article, we have highlighted four approaches
to dealing with paradoxes. The first views the leader
as a strategist, helping to frame the new challenge
creatively, as Brad Anderson did so successfully at
Best Buy when introducing customercentricity.
The second views the leader as a balancer in the
organisation, blending function and process, creativity
and discipline. The third calls on CEOs and senior
executives to act as knowledge brokers, bringing in
expertise and tools to help resolve difficult paradoxes
and to use judgement on when to have flexibility in
systematic approaches. Finally, there is the moral side
to a leader, as he/she tries to respect the core values of
the firm in a manner that also enhances shareholder
interests.
Recognising and resolving paradoxes requires a
leadership style that may itself be a paradoxical blend
of directing and listening. Senior executives have the
power to force their decisions on an organisation.
Paradoxically, they should rarely use that power.
The most lasting changes will come through the use
of informal authority: listening to the organisation;
clarifying the leaders’ views; mounting a convincing
argument for the need for change; and explaining
clearly the benefits of change programmes as well as
the consequences to the company of not pursuing
them. When the need for change is fully accepted by
the members of an organisation, resistance to the pain
of change will be much more easily overcome.
REFERENCES
Chakravarthy, B (1997) “A New Strategy Framework for Coping
with Turbulence”, Sloan Management Review 38 (2).
Chakravarthy, B and Lorange, P (2007) Profit or Growth? Why
You Don’t Have to Choose, Englewood Cliffs: Wharton School
Publishing.
Collins, JC and Porras, JI (1994) Built to Last, New York:
HarperBusiness.
Heifetz, R and Laurie, D (2001) “The Work of Leadership”,
Harvard Business Review, December: 131-140.
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Cover Story
Leader Speak
Bold Moves in
Tough Times
THE AFTERMATH OF 9/11 HAD SET THE AIRLINE INDUSTRY INTO A TAILSPIN. AT SUCH A TIME,
WILLIE WALSH TOOK CHARGE OF AER LINGUS, WHICH WAS AT THE BRINK OF COLLAPSE, AND
TRANSFORMED IT INTO ONE OF THE MOST PROFITABLE STATE-OWNED AIRLINES IN THE WESTERN
WORLD. DURING A VISIT TO THE ISB, WALSH AND MILIND SOHONI DISCUSSED STRATEGIES OF
ENTERING NEW MARKETS, SCOPE FOR MORE SERVICES IN INDIA, THE MUCH-TALKED ABOUT
TERMINAL 5, MANAGING DISRUPTIONS, AND OTHER ISSUES.
Milind Sohoni: British Airways is positioning itself as
a premium-brand. Given the current severe financial
crisis world-wide, what strategies are you adopting
to safeguard the airline in the short-term and
simultaneously grow in the long-term? Furthermore,
British Airways seems to be expanding its network into
emerging markets. How does this fit into the larger
scheme of becoming a major premium-brand airline?
Willie Walsh: We plan to do this by expanding our
fleet. A large fleet with a variety of aircrafts gives us the
flexibility to expand and enter new markets. We will
continue to invest in new aircrafts and have already
put financing in place about eighteen months ago. In
the next three years, we will take delivery of about
20-24 new aircrafts. This year we will take four more
777 200s, next year we will take six 777 300s, and
then A380s and 787s. We have 57 747s in our fleet
today. They were to be used for growth primarily but
we will continue to use them as replacements. The
A 380 makes sense to us because it gives us scale in
high volume markets where there is some constraint,
although our analysis is that with oil prices at about
$60 a barrel, a large twin is more efficient than the
four engine aircraft.
Will the 777s be used more for the emerging
markets?
We feel the 787 is going to be a fantastic aircraft for
the emerging markets. It has a great operating range,
is fuel efficient, and has a suitable size. We have
Leader speak
converted a range of 777s into a four or three-class
configuration, but we don’t have first class on all of
our 777s, which is a compromise. You can’t get a
single aircraft type that will suit your network. We
will look at the 787, for example, 787-8, 787-9 and
787-10s. We look for a destination that can support a
mix of traffic, both business and leisure. Typically we
look at cities where there is strong financial services
or strong IT, pharmaceuticals, biotechnology or
high concentration of various industries which will
generate traffic. Hyderabad is an example of this sort
of industry presence.
At Hyderabad, British Airways has been a late entrant,
Lufthansa and KLM were here earlier. Does that affect
you? Are you thinking of any other cities in India other
than the metros?
One of the advantages we have at Heathrow is the
network. London as a market has the biggest Origin
and Destination (O&D) market around Europe.
So, we can sustain a large network based on O&D.
What is important to us, particularly for developing
markets, is to be able to complement the O&D
traffic with transfers. That is why an efficient hub
operation becomes important. The business case
for the launch of Hyderabad assumed a transfer mix
of about 60 percent, and about 40 percent of our
passengers from Hyderabad by volume currently are
transfer passengers. We can connect Hyderabad to
22 destinations in the US; KLM or Lufthansa do not
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ISB INSIGHT
During tough times one may
need to be radical in order
to survive, manage, and
flourish
have that range. We fly 11 planes a day from London
to New York. We can offer frequency of service as
well. Looking at emerging markets we recognise that
there needs to be strong O&D demand and also that
it can be complemented by transfer traffic.
We fly twice a day, to Mumbai and Delhi, daily to
Bangalore, five days a week to Chennai and Hyderabad.
We are currently doing three flights a week to Calcutta
but plan to suspend that route from the end of
March as there isn’t a strong premium market there,
although we recognise that business people need the
flexibility and there are competitors who offer a daily
service. We would look for an opportunity to launch
new destinations with five services a week with a
view to building daily services initially and ultimately
building a double-daily service. It is very inefficient,
in terms of crew utilisation if we do not operate a
daily service.
Willie Walsh is the current CEO of British Airways. To his credit goes
the reinvention of Aer Lingus as a profitable no-frills airline. Walsh
took over the reins of British Airways as CEO in October 2005, and
has been the biggest advocate of London Heathrow's Terminal 5
another because he has built relationships with several
airlines across the alliance structures.
You are trying to differentiate yourself as a premium
India has a lot of regulations; we do not yet have open
brand airline and have moved away from directly
skies. Would you be looking at owning a stake or
competing with low cost airlines. British Airways is
alliances with local Indian carriers?
also a member of oneworld. How do you view alliances
Since the time India liberalised or was partly regulated,
we have moved from 19 flights a week to 48 flights
a week today. The old bilateral agreement was very
restricted and clearly there was a greater demand
than the capacity provided. We have recognised that
our network does not really require a feed airline
at the Indian destinations. Our business case for
British Airways assumes that we will get local traffic
by virtue of our service and that having an alliance
arrangement is not a critical issue. For some of our
oneworld partners it is; and we have had discussions
with a number of carriers, mainly Jet Airways. I know
Naresh Goyal, founder Chairman of Jet Airways,
well. He has not committed himself to one alliance or
that oneworld has competing with other alliances such
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as SkyTeam and Star Alliance? Do you think that is the
way to sustain a mid-size, international carrier with a
premium brand ?
I think it is changing. At Aer Lingus, we joined the
oneworld alliance in 2000. After I took over as
CEO and restructured Aer Lingus, I recognised that
alliance membership was not as important for Aer
Lingus, given the changing business model. Alliances
do very little for your core structures. It is often said
that alliances give you better purchasing power, I have
seen very little evidence of that. In a lot of cases it will
add to your costs. Aer Lingus pulled out of oneworld
because unlike most airlines which are moving to
Leader speak
a common IT platform - Amadeus or Saber - Aer
Lingus had its own IT platform and for every new
alliance member they had to invest in changes to the
IT platform. In many cases these new partners weren’t
delivering any benefit. Alliances have been beneficial
for revenue. Large multinational corporations are
looking for deals on a global basis and unless you can
offer genuine global deals you would have to rely on
one of your alliance partners.
the transatlantic with Star and SkyTeam is next to
impossible. Both Washington Transportation and
the EU Commission now recognise the imbalance.
Two years ago there was significantly less evidence
of competition between the alliances but that is
developing particularly through corporates in the
US.
You talked about operating costs and a lot of effort
taken to reduce it. By moving to e-retailing and getting
What we learnt from that was
trying to develop two hubs so
close to one another is next
to impossible. It was a lot of
investment in infrastructure to
allow for hub operations but it
just did not work.
away from global distribution systems British Airways
has reduced 9 percent of its operating costs.. What
other measures have you taken? For example, has
BA considered hedging on fluctuating fuel prices or
holding on to cash reserves?
There is not a lot that you can do.
Typically, for many large airlines, almost 10 to 20percent
of their daily flights are disrupted (either delayed or
cancelled). How does BA view this challenge, especially
when Heathrow, BA’s main hub airport, runs close to
full capacity ? Will the 3rd runway, and the new BA
How does the command and control work when there are
terminal (T5), help in this regard? Has BA ever thought
multiple partners in an alliance with different sizes and
of developing an additional (or virtual) hub to ease the
serving different markets? Do the big players dominate
congestion at Heathrow?
the operations or is there centralised planning?
We tried to develop a second hub at Gatwick back
in the late 90s which was a massive failure. What we
learnt from that was trying to develop two hubs so
close to one another is next to impossible. It was a
lot of investment in infrastructure to allow for hub
operations but it just did not work. We recognised
that Heathrow was probably our greatest strength and
our greatest weakness as well. We live with disruption
on a daily basis and I would argue becoming an expert
at managing disruption as a result. We have become
very efficient at managing disruption.
There are a lot of issues. The view within oneworld
is that small is actually better. More carriers add to
complexity, they often introduce conflicting objectives.
We are very selective within oneworld. We recognise
that for an alliance to be successful the individual
members must be successful. I would say oneworld
works in a very effective way because we are small,
and have very strong bilateral relationships within the
alliance; there is a clear common understanding as to
what needs to be done. But we need to address the
regulatory issues. Getting anti-trust immunity (ATI)
between British Airways and American is important
because that has hindered the development of the
alliance. We are now in an environment where the
other two alliances - Star and SkyTeam - have ATI
on the transatlantic and are competing within the
US. So for oneworld competing as an alliance on
Leader speak
Is that primarily because of you thinning your schedules
or other developments such as the new BA terminal
T5?
T5 has been a big step forward. Integrating aircraft
around one single terminal is much easier than
integrating them across terminals that are separated by
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a live active runway. You had to cross an active runway
to get from T4 to T1. It can take you four hours to
take an aircraft at T4 and bring it to T1, because
you will get no priority as a taxi towing aircraft. We
had to have dedicated fleets at T4 and T1, which is
incredibly complex so we gave up doing that. There is
a lot of automation, and we have developed a matrix
system which tells us the flow control rate for landings
and take-offs at Heathrow. Heathrow operates forty
take-offs and forty landings per hour, if it is reduced
to, say, twenty-five, we know we are going to have to
cancel flights.
At the start of every day at 6.30 am I get a text
message which tells me if there are any flow control
restrictions anticipated. We work very closely with
air traffic control (ATC). ATC anticipates flow rates
and advices the Brussels Central Flow accordingly.
We have built some systems to project developments
through the day and have pre-determined schedules
to operate at the altered flow rate. Heathrow was
disrupted on 276 days of 356 as a result of weather
disruption. Gatwick which is only twenty miles away
was disrupted just 52 days in the same year. Heathrow
is very finely balanced. We have had to adapt our ways
of working to accommodate that.
Indian airlines are learning how to handle disruptions.
It is a cost that the airline incurs and one has to fold
that into the planned schedules. The other big cost
is obviously employees. Most airlines invest in crew
training substantially. However, an airline also has
other employees like the ones in the administrative side
of the business or in the airports. The airiline industry
is not known to be one of the highest paying industry.
How does BA attract talent for itself?
Attracting people into the industry has been a good
experience because it is seen as an exciting industry.
There is this perception that you have the opportunity
to fly everywhere and anywhere at no cost. We may
not be the best paid but the total package is still
seen as attractive. If you want money then this is not
the industry to go to, at any level. But if you want
challenge, if you want to deal with a different business
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everyday, it is a very good industry to go into. We
attract talent because there is great variety, you can
deal with people or technical issues, you have got
pretty much every type of job wrapped up in one
industry. We don’t struggle to attract or retain people.
On the other hand, I could argue that you don’t
have the natural turnover that you would like to see.
People come in and stay for life rather than looking
for opportunities to move and that can be a problem.
During the restructuring some people left and it has
had an amazing rejuvenating effect on people.
Finally, one question about the environment. The
airline industry is one of the biggest polluters of the
atmosphere. What is BA doing to address this issue,
not just in terms of buying fuel-efficient aircrafts and
using bio-fuels, but other things such as involvement/
sponsorship of R&D effort?
Our industry is perceived as being the worst pollutant
but we are not. We take the issue very seriously. We
produce an annual report on our environmental
performance, and have done so for many years. During
the early ‘90s, we set ourselves public targets on fuel
efficiency reduction by 30 percent. A significant
part of that came from operating performance
and procedures. By 2007, we had achieved a 28
percent improvement, so we
set ourselves a new target.
We are now talking of a CO2
target and have expressed our
performance in the form of
grams of CO2 per passenger
per kilometre. Today, we
emit 110 grams of CO2 per
passenger per kilometre. Our
target is to reduce that by
Sohoni is Assistant
2025 to 83 grams of CO2, Milind
Professor of Operations
a 25 percent improvement. and Management Science
at the ISB. He researches
Furthermore we also target on Supply Chain and
Management,
no waste to landfill by 2010 Revenue
Mathematical
and want to increase the Programming, Network
and Scheduling,
amount of recycling that we Design
and Industrial Practice of
Operations Research
currently do.
Leader speak
Features
Fair Value Accounting
ON THE ALLEGED LINK BETWEEN FAIR VALUE ACCOUNTING AND THE FINANCIAL CRISIS
by Sanjay Kallapur
'Fair values’ - defined in IAS (International Accounting Standard) 39 as the amount for which an asset could be
exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction
Fair values are used in the initial valuation of tangible and intangible assets in acquisitions, for measuring
impairment losses for assets, optionally for revaluation of fixed assets, and most importantly, for mark-tomarket accounting for financial instruments. International Accounting Standards require fair value accounting
for financial instruments such as investments in stocks, bonds, securitised assets, and derivatives. It is this last use
that is controversial. The standard setters’ seem to want to move even further towards fair value accounting—
US GAAP (Generally Accepted Accounting Principles), and with some restrictions IFRS (International Financial
Reporting Standards), allow the use of fair value accounting for all financial assets and liabilities including loans
and receivables.
Under IAS 39, financial assets are divided into three categories: trading, available-for-sale, and held-tomaturity. Trading securities are marked to market, with gains and losses flowing through the income statement.
Available-for-sale securities are also marked to market, but gains and losses are shown directly under owners’
equity without flowing through the income statement. Debt securities that are held to maturity are shown at
amortised cost. In India, RBI is already requiring banks to
use fair value accounting, but other Indian companies will
A long-standing criticism
move to IFRS in 2011.
Always unpopular, mark-to-market accounting has come
is that there is no liquid
in for even greater criticism recently because of the financial
market for many financial
crisis. A long-standing criticism is that there is no liquid market
instruments; in such cases for many financial instruments; in such cases it is really markto-model rather than mark-to-market accounting. That is,
it is really mark-to-model
the fair values are based on management discretion regarding
rather than mark-toassumptions that go into valuation models, and the resulting
numbers are useless to investors.
market accounting.
The alleged link between fair value accounting and the
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ISB INSIGHT
financial crisis is as follows. If some assets decrease in value, then mark-to-market accounting requires that
the financial institution holding it must mark it down to its market value and thereby recognise a loss. The
loss erodes its capital. In order to shore up its capital it may have to sell those assets. This forced sale further
depresses prices in the market, giving rise to the cycle all over again. However, accounting rules do not require
companies to mark their assets to fire-sale market prices. IAS 39, the accounting standard on mark-to-market
accounting for financial instruments, states that the fair value of an instrument is that which would have prevailed
in an arms-length exchange motivated by normal business considerations. The SEC (Securities and Exchange
Commission) and FASB (Financial Accounting Standards Board) in USA clarified that the results of disorderly
transactions do not determine fair value. Distressed or forced liquidation sales are not orderly transactions. The
IASB (International Accounting Standards Board) has clarified that the SEC-FASB clarification is consistent
with IAS 39.
The SEC recently issued a study that
clears the misconceptions about the effects of
ACCOUNTING CONFERENCE – FOCUS ON IFRS
fair value accounting on financial institutions.
A common accounting language, International Financial Reporting
It finds that on average only 45 percent of
Standards (IFRS), can help Indian companies benchmark their
US financial institutions’ assets are subject
performance with global counterparts. The Second Accounting
to fair value accounting. Twenty percent of
Research Conference at the ISB saw a special focus on IFRS.
these are available-for-sale securities, i.e.,
An outstanding set of papers were presented at the
their mark-to-market gain or loss does not
Conference by top researchers in Asia and North America, followed
go through the income statement. Only nine
by a panel discussion on ‘India and IFRS’.
percent of the assets measured at fair value
Professor Sanjay Kallapur spearheaded the proceedings of the
(i.e., 9 percent of 45 percent of total assets)
Conference. Panellists comprised Jamil Khatri, Head, US GAAP and
are marked-to-model; for the remaining 91
IFRS Services, KPMG in India and Sai Venkateshwaran, Head, IFRS
percent there is either a direct or indirect
Practice, Walker and Chandiok Grant Thornton. It was moderated
market-traded price available to determine
by Professor Praveen Sinha, Chapman University. The Conference
fair value. The study also finds no evidence
committee consisted of Sunil Dutta, UC Berkeley and ISB, Sanjay
that mark-to-market losses were responsible
Kallapur, ISB, Cathy Schrand, Wharton, L Shivakumar, London
for the recent financial institution failures.
Business School, K Sivaramakrishnan University of Houston, and
Even if accounting did result in financial
Sri Sridharan, Northwestern University.
institution failures, two crises in recent
memory remind us that the result is still
likely to be far better than the alternative.
The Savings and Loans crisis in USA during the 1980s and the Japanese crisis of the 1990s prolonged for lack of
fair value accounting. In both cases, many banks had become insolvent because market values of their assets had
fallen below their liabilities. They nevertheless continued to operate because the thenprevailing accounting rules permitted them to hide their losses by recognising assets
at their unrealistically high historical costs. They were therefore solvent according
to their reported numbers, which did not reflect their de-facto insolvency. The
accounting solvency is one reason that prevented regulators from stemming the loss.
The banks continued to function and made even riskier loans because an insolvent
bank’s shareholders have nothing to lose–with limited liability, the loss is borne by
creditors and the government in the form of deposit insurance–and everything to gain
if the risk paid off. The eventual loss and the required bailout were therefore much
higher than it would have been. In the case of Japan, it led to the “lost decade,” when
economic growth ground to a halt. India can ill afford such risk.
Sanjay Kallapur is
Dean and a
Current market values are more relevant for decision making. Under historical Associate
Professor of Accounting
cost accounting, managers can control the reported results by a practice called “cherry- at the ISB. His research
interest spans financial
picking,”- selling appreciated investments selectively in just enough quantities to and managerial
auditing, and
achieve the desired financial results. Mark-to-market accounting correctly reflects the accounting,
corporate governance.
underlying market volatility, which is the reality. To avoid that reality may be temporarily
comforting, but it will lead to the wrong actions and more pain in the end.
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Features
Features
When Good Looks Kill
AN EXAMINATION OF CONSUMER RESPONSE TO VISUALLY ATTRACTIVE PRODUCT DESIGN
by Rishtee Kumar Batra
“Welcome to the esthetic economy: Idealogues may call beauty a myth, intellectuals may insist that the thought is
all that counts, corporate managers may squirm at dealing with artists - but beauty appeals to us all. Ignore it at
your peril.” (Postrel, 1999, p.88)
In the past several years, the issue of design and its role as a strategic tool for marketplace success has received
considerable attention by corporate America (Crozier 1994; Schmitt and Simonson 1997; Nussbaum 2000;
Coates 2003; Scott and Batra 2003; de Monthoux 2004; Postrel 2004). In a time when companies are able to
match each other on dimensions of quality and price, superior design is seen as a key to winning customers.
Design elements such as size, colour, shape, and texture are widely recognised as a means for differentiation
in increasingly competitive and cluttered markets. A product’s visual design is often among the first pieces of
information consumers encounter and thus plays a front-line role in the success of a product (Kotler and Rath
1984). The importance of innovative visual design is an issue that has received a great deal of attention across a
broad spectrum of industries, as consumers increasingly demand elegant products that meet both appearance
and functionality as a priority.
Based on the research and managerial evidence thus far, we might be tempted to conclude that pursuit of
high design is always a good thing but my goal is to understand whether or not this is in fact true. Specifically,
the state of design literature today does not inform us with an understanding of how consumers interpret and
respond to increased visual attractiveness in product design. While anecdotal evidence suggests that more
attractive design should render more positive consumer reactions, we currently lack a theoretical understanding
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ISB INSIGHT
While anecdotal evidence suggests that more
attractive design should render more positive
consumer reactions, we currently lack a
theoretical understanding of this phenomenon.
of this phenomenon. What we do know is that a product’s visual appearance is vested with psychological
meaning and communicates information to consumers and that tangible attributes of a product, such as
size, shape, and style, are pieces of information that consumers use to draw inferences about unobservable
attributes such its functional and ergonomic qualities (Friedmann and Lessig 1987; Crilly, Moultrie et al. 2004;
Creusen and Schoormans 2005). However, as Bloch urges, “research is needed to determine which product
form elements trigger particular cognitive responses among consumers.” (Bloch, 1995, p.25) We focus on a
specific type of product form- visual attractiveness- and examine its impact upon consumers’ perceptions of
performance.
Social psychological research in the domain of person perception has shown us that individuals readily
make inferences of intellectual capabilities and competence of others based on their physical attractiveness (for
a review see Eagly, Ashmore et al. 1991). While physically attractive people are thought to be more competent
and intelligent than their unattractive counterparts, there appears to be a limit to this halo effect. Highly
attractive individuals seem to conjure negative inferences such that they are thought to be less intelligent than
those who are moderately or slightly above attractive. Using these theories from person perception literature
as a starting point, we examine the impact of visual attractiveness upon consumers’ perceptions of product
performance and argue that under certain circumstances, consumers generate negative inferences regarding
the performance and quality of highly attractive products.
The results of two laboratory studies suggest that design as a strategic tool might not be the most
appropriate means of success for certain firms. In fact, it seems as if not only can the rewards from good design
be diminishing, but in fact can be detrimental for some firms. In Study 1, we demonstrate that void of external
information, such as brand reputation, consumers tend to inherently doubt the efficacy of products with
extremely high levels of visual attractiveness as compared to those of moderate levels of visual attractiveness.
In the case of two different product categories - toasters and hand vacuums - when brand information was not
present, participants rated moderately attractive designs as being of the highest performance. Furthermore, an
analysis of their open-ended responses indicated that the formation of these performance-related judgments
was predicated on belief structures about the relationship between a product’s appearance and its performance.
Whereas for low and moderately attractive products consumers were shown to utilise a “what is beautiful is
good” belief structure the same was not true for highly attractive products. In the case of highly attractive
products, a significant number of participants indicate scepticism regarding the probable performance of the
products and instead relied upon a belief structure which we call “too beautiful to be good”, in which high
levels of attractiveness were equated with lower efficacy. However, this base effect was shown to be moderated
by access to external information such that the second belief structure was deactivated in the presence of
strong brand information and the relationship between product attractiveness was positive and linear.
The results of Study 2 demonstrate that the effects observed in the previous study are also moderated by
access to processing capabilities, indicating that the process of drawing upon belief structures of attractiveness
and performance is largely a cognitive one. Under conditions of high cognitive load in Study 2, participants
engaged in an affect-based processing such that more attractive products are always thought to be of higher
quality and performance. In both the unbranded condition, as well as in the weak-brand conditions, participants
still favoured highly attractive products over moderately attractive products. Further evidence for an affect
based process is offered by the fact that brand information was discounted all together. The lack of interaction
ISB INSIGHT
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features
Whereas for low and moderately
attractive products consumers were
shown to utilise a “what is beautiful is
good” belief structure the same was
not true for highly attractive products.
between brand and attractiveness demonstrates that unlike Study 1, participants are
not elaborating upon their implicit theories and are not adjusting their inferences to
incorporate external information. Instead, they are using affective information drawn
from the product’s attractiveness to make inferences of its performance.
The results of this study speak widely to the diverse community involved in product
design decisions. By understanding the boundary conditions within which this effect
operates, we can work toward informing both marketers and designers of the possible
perils of an excessive detail to design.
REFERENCES
»
Coates, D. (2003). Watches tell more than time, McGraw-Hill New York.
»
Creusen, M. E. H. and J. P. L. Schoormans (2005). "The Different Roles of
Product Appearance in Consumer Choice." Journal of Product Innovation
Management 22(1), 63-81.
»
Crilly, N., J. Moultrie, et al. (2004). "Seeing things: consumer response to the
visual domain in product design." Design Studies 25(6), 547-577.
»
Crozier, R. (1994). Manufactured pleasures: psychological responses to
design, Manchester University Press.
»
Rishtee Kumar Batra is
pursuing a Marketing
doctoral programme
at Boston UniversitySchool of Management.
Rishtee has a strong
interest in two separate
areas of consumer
behaviour- product
design research as well
as research focusing on
self-conscious emotions
in marketing.
de Monthoux, P. G. (2004). The Art Firm: Aesthetic Management and
Metaphysical Marketing, Stanford University Press.
»
Friedmann, R. and V. P. Lessig (1987). "Psychological Meaning of Products
and Product Positioning." Journal of Product Innovation Management 4(4),
265-273.
»
Kotler, P. and G. A. Rath (1984). "Design: a powerful but neglected strategic
tool." Journal of Business Strategy 5(2), 16-21.
»
Nussbaum, B. (2000). Designs for the Future. Business Week. 28: 60.
»
Postrel, V. (2004). The Substance of Style: How the Rise of Aesthetic Value Is
Remaking Commerce, Culture, and Consciousness, Harper Perennial.
»
Schmitt, B. and A. Simonson (1997). Marketing aesthetics, Free Press
New York.
»
Scott, L. M. and R. Batra (2003). Persuasive imagery: a consumer response
perspective, Mahwah, NJ: Lawrence Erlbaum Associates.
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Features
War against Terror
‘WAR IS NOT A SOLUTION, NOT EVEN AN OPTION’
How to combat the biggest evil of our times – ‘terror’ - General Arjun Ray, while delivering an engaging talk at the
ISB, drew on strategies on how to beat terror . We present an excerpt from his talk.
We do not learn from History
India has been afflicted by acts of terrorism for over
six decades, but it was the Mumbai terror killings of
26/11, during which, for the first time, that the psyche
of the rich and middle class was brutally assaulted.
26/11 has demonstrated a systemic failure in dealing
with terrorism. Despite India’s track-record of sixtyone years in dealing with insurgency, more than any
other country in the world, the results so far have been
dismal. Over 40,000 civilians, terrorists, and security
personnel have been killed in Jammu and Kashmir; 32
percent districts of India are under Naxal influence,
and insurgency in the North East continues unabated;
after Iraq, the largest numbers of terrorist deaths are
in India; the guilty of the Mumbai blasts of 1993 are
still being prosecuted, fifteen years after the tragedy.
Can the judiciary, an institution of the state, and
the law enforcement and investigative agencies be
given a clean chit? Is it fair to single out politicians for
recurring failures? Shouldn’t we be questioning our
conscience and institutions harder?
History teaches us that we do not learn from
history.
War is Unthinkable
In India there are two strategic realities that
politicians, diplomats, soldiers and intelligentsia have
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overlooked. These realities are conceptual and provide
the scaffolding for India’s response to terrorism in the
future. There are no quick solutions and we are in for a
long haul. First, war is not a solution or even an option.
India and Pakistan have been to war over Kashmir and
insurgency has erupted four times and there has been
no resolution. Since 1989, a proxy war is raging in the
Kashmir Valley and there is no end in sight. Despite
homeland security, highly coordinated intelligence
services, a national doctrine to combat terrorism,
well-equipped armed forces, the US is losing its war
against terror in Iraq and Afghanistan. Also, war will
deepen the present global economic crisis. According
to the Nobel Laureate and Economist Joseph Stieglitz,
the wars in Iraq and Afghanistan are costing about 3
trillion dollars to the US exchequer-that is nearly three
times the GDP of India. Pakistan is a nuclear nation
and war between two nuclear powers is unthinkable.
I do not think that the Americans would allow a war,
simply because that would undermine America’s war
against Taliban in Afghanistan. Terrorists want war
as that would force Pakistani forces to switch to the
Indian border, thus allowing the Taliban to occupy
the northern part of Pakistan which is already under
pressure. Strategically, this would de-stabilise Pakistan,
and a de-stabilised Pakistan will be a greater threat to
India than it already is.
features
Intellectuals are strong at
academics, but they are not
committed to social change.
Like terrorists, they too
have a fixed world view, are
dogmatic and doctrinaire.
They espouse a viewpoint
and are prepared to defend
it all costs in classrooms,
in front of TV cameras, in
newspaper columns, and at
cocktail parties.
As Normal as Anyone Else
The second reality is that terrorists are not fanatics
or sociopaths. They are as normal as everyone else.
That makes our task of identifying potential terrorists
impossible and our responses uncertain. While serving
as a brigadier in the Kashmir Valley from 1993 to 1995,
I was in charge of military and intelligence operations.
We had about 300 terrorists in custody – terrorists of
all hues – young, old, mercenaries, jehadis, and the
home-grown variety. Civil and military psychiatrists
examined them to answer one question – “were they
fanatics”? The answer at the end of the tests was a clear
“No”. Here we may recall that Karl Adolf Eichmann,
features
sometimes referred to as the ‘architect of holocaust’,
was examined by six of Israel’s best psychologists and
psychiatrists, before he was brought to trial. They
declared he was “more normal than the average
person”. We may conclude that there is a “banality
about evil” - namely; evil is done not by sociopaths
and fanatics but by ordinary people. The power of the
situation, blind obedience, and moral disengagement
seem to exert greater power over human behaviour
than any other factors. The conduct of prison guards in
concentration camps, and American male and female
soldiers torturing Iraqi prisoners in Abu Ghraib, are
well documented examples.
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Lt General (Retd) Arjun Ray is a veteran in Counter Terrorist
Operations. He has served in the Indian army for over 38 years,
combating conflict situations and insurgency, interacting with
terrorists. He has also been actively involved in post-conflict
reconstruction.
The War Within
There are two strategic challenges we must surmount
in dealing with terrorism. The first challenge is the
“clash of civilisations” theory that has radicalised
Islam and given the average Muslims a feeling of being
victimized and under threat. Notions of a decadent
West and an assimilative India have further added
to their suspicions and fears. For right and wrong
reasons the Muslim community today is alienated,
with trust having broken down between them and
the others. Unless trust is restored by improving their
human development indices, empowering women,
providing job opportunities, and overcoming each
other’s prejudices, alienation will continue.
The underlying causes of terrorism are
rooted in our society, and we cannot seem to be at
war with our own people. The answer lies in isolating
terrorists and hard liners by denying them the oxygen
they need to survive. If we want to seriously defeat
militancy, we have to win over the people. Till that
happens, terrorism will thrive.
The Golden Key
The larger issue before society is the widespread
alienation of minorities. When a section of society
perceives that they have been wronged, or the
government is weak and takes sides, mass alienation
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and ghetto-isation occurs. Some minority communities
feel insecure and deprived at all levels and are incensed
by the stereotyping. Development indicators are well
below the national average for minorities, and it is not
surprising that many perceive that they are secondclass citizens. In such circumstances, people believe in
what Albert Camus said: “It is better to die on your feet
than to live on your knees.” The grand design to defeat
Islamic militancy can succeed, provided terrorists and
their fundamental ideologies are isolated, and Muslim
communities join the mainstream.
History tells us that the rise and fall of great
civilisations has not been only because of military and
economic over-reach, but mainly because of the quality
of education existing in a culture. Thus, providing easy
access to quality education and technology in schools
is imperative. To me, ‘whole-education’ is the golden
key. ‘Whole-education’ should broaden our mind and
set it free, enabling us to understand the others’ point
of view, and to live together peacefully despite our
diverse views.
According to the Nobel
Laureate and Economist
Joseph Stieglitz, the wars
in Iraq and Afghanistan
are costing about 3 trillion
dollars to the US exchequer
that is nearly three times
the GDP of India.
features
‘Whole-education’ is the golden key.
‘Whole-education’ should broaden our
mind and set it free, enabling us to
understand the others’ point of view,
and to live together peacefully despite
our diverse views.
Be the Intelligentsia
Another challenge lies in how to involve citizens in
fighting terrorism. Government and security forces
alone cannot defeat terrorists because terrorism is
not a law and order or military problem. Citizens are
part of the System. An apathetic citizenry will only
exacerbate the situation.
Here we need to delve into the role and psyche
of India’s middle class, intellectuals, and intelligentsia.
There is a difference between intellectual and
intelligentsia. Intellectuals are strong at academics,
but they are not committed to social change. Like
terrorists, they too have a fixed world view, are
dogmatic and doctrinaire. They espouse a viewpoint
and are prepared to defend it all costs in classrooms,
in front of TV cameras, in newspaper columns, and at
cocktail parties. ‘Intelligentsia’ - Russian derivative,
is different. They are intellectuals in their own right,
they are global citizens. They are change-agents and
active citizens who are committed to social and
political reform. They have the unique ability of not
taking sides but bringing opposite sides together.
Intelligentsia comprises people who shape public
opinion. We need to be part of this intelligentsia,
because the fight against terrorism and all forms of
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political and religious violence starts with us. The
tragedy of life is not the evil deeds by the evil people,
but the appalling silence of the good people. As
members of the intelligentsia, I expect you to secure
the middle ground between the two extreme positions
of hate and sanity.
The Middle Ground
War and armed responses are no solution for problems
that are political, cultural, and religious. The ultimate
answer lies in winning over people and isolating the
terrorists. Towards this strategic goal, citizens and the
intelligentsia of the nation play a pivotal role. They
have to become agents of change and secure the
middle ground.
Success will depend on how tolerant one is. If we
do not give space to dissent, we will go into reverse
gear into a dangerous situation. Unless the middle
ground is expanded there will never be peace. There
are only two options – coexistence or no-existence.
The only impediment before us is fear. Terrorist
intends to strike fear in our minds to create a climate
of collapse and deter us in capturing the middle
ground. I say; do not be afraid. Because if you are;
then the terrorist will win.
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Features
Financial Meltdown
augurs well
SMBs ARE ADOPTING THE BENEFITS OF NEW TECHNOLOGIES FASTER
by Ramanan S V
The year 2009 has started with a huge impact of the economic slowdown, affecting enterprises, big and small,
across industries.
With low forecasts and mounting costs, businesses
are redefining their strategies and are looking at new
technologies that can help them deal with and if
possible, sail through the crisis.
I am a true believer of business opportunities
at the ‘Bottom of the Pyramid’ and I believe it holds
true not only for the FMCG segment but for the
technology sector as well. I also include the Small and
Medium Businesses (SMBs), with a turnover ranging
from a couple of lakhs to Rs 500 crores, within the
classification of the Bottom of the Pyramid.
A study of the Indian market reveals that there are
35 million SMB units, with retail units contributing to
52 percent of the total landscape. The three major
contributors to the SMB segment are Retail, Services,
and Manufacturing. The SMB landscape comprises 18
million Retail units, 9.5 million Service sector units,
and 7.3 million Manufacturing units. These SMBs
spent a whopping Rs 6.6 billion on IT in 2007-08,
which is about 30 percent of the total IT spend in
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India. With approximately 50-60 percent of IT spend
in the country expected to come from the flourishing
SMB segment by 2009 (Source: NASSCOM), it is
clear that there is a huge market waiting out there to
be tapped and that IT companies need to be more
focused on capitalising on it.
If one were to do a spot check of the technologies
that could be of use to the SMBs, several would be on
the top of the list. Some of these technologies, in no
particular order, are: unified communications, VoIP,
IP telephony, storage technologies, ERM, softwareas-a-service (SaaS), software-oriented architecture
(SOA), Web 2.0, virtualisation, and green IT.
It is usually thought that these technologies are
more inclined toward enterprise usage. It is important
to note that the needs of the SMBs are quite similar to
the needs of an enterprise, the major differentiators
being their respective sizes and the dollar value of
their respective IT spends, which would naturally be
quite diverse. SMBs are very price conscious, and this
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is a factor vendors should keep in mind. The solutions
should be affordable, cost effective and should of
course, deliver.
SMB Market Perspective
» Recession is forcing SMBs to improve their
efficiency and reduce the cost of conducting
business
» SMB market for software products will grow
rapidly with the increase in PC, Internet and
mobile adoption
» Ease and affordable availability of technologies is
driving the overall technology adoption among
the SMB fraternity, which is evident from the fact
that India already has 5000 IT/ITeS companies
that have 100 percent PC penetration.
» Also, Internet has been growing with a CAGR of
46 percent for the last seven years.
SMB investments in Information Communication
Technology (ICT) are growing rapidly as an increasing
number of companies in this segment feel the
importance of ICT in their growth. As a result, ICT
vendors and channels are giving more attention to
SMBs and are customising products and services to
meet their needs. Let’s take a look at some of these
new technologies and its acceptability to SMBs in the
current downturn.
Unified Communications
Unified Communication (UC) is an emerging class
of application and services designed to improve
communications within the modern organisation,
to keep workgroups connected, enable them to
collaborate effectively and streamline business
processes. UC solution is an IP based network
platform and helps to converge data, voice, video,
and mobility. It is critical to the success of e-business
companies today, just as it was instrumental in making
them hugely successful in the 1990s.
As UC applications become more prevalent in
the extended workspace, organisations are realising
the associated benefits. In today's dynamic business
environment, perhaps the most important benefit
comes from having a communications system
that can change and grow at a moment's notice,
enabling new capabilities for more effective business
communications, employee mobility, streamlining
business processes and improving profitability.
Intensifying market conditions, geographical
challenges, and communication costs are some of
features
the major drivers of IP telephony within the SMB
community in India. SMBs across industries are
adopting IP telephony to reduce communication costs
In today's dynamic
business environment,
perhaps the most
important benefit
comes from having a
communications system
that can change and grow
at a moment's notice
and increase their workforce productivity. The biggest
advantages of IP telephony – mobility and flexibility
- are themselves the key driving forces in the SMB
market today. IP enables work cultures of 'Always
Online', 'Working from Home' (WFH) and now with
the affordability of unified communication solutions
(tailor made for SMBs) will facilitate features like
presence, video conferencing, file sharing etc. The
location of the workforce would be irrelevant soon.
In today's tough economic situation, SMBs
are reconsidering their administration and travel
expenses. The projects that will reduce costs and
provide clearly identifiable ROI are getting the green
light - conferencing solutions fall into this category.
Web 2.0
Web 2.0 is hot and fast catching up. Hardly any serious
SMBs today can think of scaling up its operations
without making an effective presence online. Web
designs based around Web 2.0 has revolutionised the
way of sharing information and using the Internet as
an exciting and more interactive experience.
With the growth in Internet adoption, SMBs are
on the lookout to differentiate themselves. Elevated
collaboration/user experience is one of the key facets
to this and hence Web 2.0 is naturally in the SMBs
radar.
Virtualisation and Green IT
SMBs are increasingly appreciating the value of going
green given the wide range of benefits that accrue
from prolonged usage of environmentally friendly
Spring 09
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ISB INSIGHT
products and lifestyles. For most large businesses
with extensive IT resources, the primary focus has
been data centres which account for the majority of
resources used. SMBs do not have a similar scale, but
can still be environmentally conscious by opting for
green solutions such as Energy Star rated appliances,
low power consuming electronics, blade servers and
virtualisation technologies, among others.
Software as a Service (SaaS)
On-demand software or Software as a Service
(SaaS) is a strategy increasingly resonating with
SMBs. According to market surveys, more than 60
percent of SMBs see on-demand software as a way
to cut costs and increase productivity. Cashing in on
this trend, vendors are pursuing the SMB market
aggressively because smaller and mid-sized firms
often lack enough dedicated IT staff to handle the
operations and data backups.
Cloud Computing
Cloud computing, the latest buzzword in the IT
industry, is likely to be adopted by SMBs faster than
large IT companies. The applications are available in
the ‘cloud’, a metaphor for the internet. An instance
of cloud computing is Google Apps which provides
business applications online and can be accessed
using a web browser. Cloud computing reduces
technology expenses for companies as applications
can be rented online by paying a subscription fee.
Adoption of this technology depends on the
maturity of the IT of the firm. Cloud services
offer significant reduction in infrastructure
costs, simplification of the way data is stored, a
reduction in application management costs and
flexible capacity. However the biggest challenge is
availability of sufficient
network bandwidth. Cloud
computing will need
sufficient bandwidth if
computing requirements
are pushed to the network.
Also, large enterprises
will remain cautious in
adopting cloud computing
services due to concerns
regarding the maturity of
Ramanan S V is founder
the offering, security issues, alum from the Class of
at the ISB. Currently
the extent of control over 2002
he is VP& Head - South,
operations, customisation Airtel Business Services.
and integration needs.
ISB INSIGHT
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Spring 09
For information on how to advertise in the ISBinsight
contact: [email protected]
Indian School of Business
Gachibowli
Hyderabad 500 032
T +91 40 2300 7000
www.isb.edu F +91 40 2300 7099
Faculty Close Up
Research Lens on
Human Capital
HOW TO BEST FIT A PROJECT MANAGER TO AN IT OUTSOURCING PROJECT
“For today’s businesses, people are the biggest asset that companies have, and this is especially true for the IT
domain,” says Nishtha Langer. Langer recently presented her work on the impact of project managers' skills on
the success of IT projects at the prestigious International Conference on Information Systems held in Paris.
A graduate from Delhi College of Engineering and a PhD in Management from Carnegie Mellon University, her
research interests, in a nutshell, are identifying the business value of IT and that of human capital. Her published
and current research includes papers on the value of technologies like RFID and electronic commerce. Langer
asserts that her entry into this domain was a lucky accident. "I had a reluctant discussion with my advisor about
this research area. She reminded me to follow the tenets of Herb Simon, an influential social scientist of the
20th century, and one of the Nobel laureates at Carnegie Mellon. I realised that many of the academic research
problems in the IT area actually come from the industry. So, it was natural for me to dig deeper in there. It was
also a reason for me to come to the ISB, to be at the centre of action of the premier IT vendors."
“Selecting the right person to lead a software project is critical. Poor project management may jeopardise
project success and tarnish team spirit. However, there is relatively little knowledge about how to
best fit a project manager (PM) to an IT outsourcing project. My current research focuses on this
gap,” Langer shares. She conducted a detailed study of data collected from one of the leading IT
vendors in India which suggested that while hard skills such as technical or domain expertise may
be essential in a PM, soft skills such as managerial and coordination skills as well as tacit knowledge
of organisational culture and clients, are more important for project success.
This study set the stage for further research on the economic returns of training for IT
vendors and their employees. “Technical skills are substitutable, whereas non-technical skills, such
as domain expertise and management skills are important for organisations, and hence valued
more by the employers,” she adds.
Nishtha Langer is Assistant
Professor of Information
As Indian firms move up the value chain and pursue more complex outsourcing engagements,
Systems at the ISB. Her
research areas are business
human capital remains a key focus area. To this end, Langer’s future research will continue to
value of Information
delve more into the human capital issue. In addition, she is looking at the economic perspective
Technology, especially newer
technologies like RFID and
of knowledge management systems employed by IT vendors that seek to lower the risks to their
B2B electronic commerce,
intellectual capital. "The goal of my research is to promote academic understanding by rigorous
economics of external IT
assets including outsourcing,
analysis, but at the same time make the research findings and its implications accessible to
and management of software
projects
managers,” she says, sharing her research objectives.
Faculty Close Up
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ISB INSIGHT
Face to Face
Brain Mapping
the Leader
PART OF THE LEADER’S JOB IS TO PERCEIVE REALITY AS IT HAPPENS, AND EGO SUB-OPTIMISES
PERCEPTION
How does modern research on the brain throws new light on leadership behaviour, how can traditional wisdom
alter team dynamics, what is the importance of psychological interventions for developing leadership qualities S Ramnarayan, Sudhanshu Palsule and Manoj Panwar met during a CLIC conference at the ISB to discuss such
issues.
Manoj Pawar:
Emotions, rationality, and spirituality all three contexts play an important role in a leader’s
decision-making process. When a leader is unaware
that he/she is relying totally on one versus the
other, problems arise. Emotional intelligence means
awareness and appropriate use of emotion, not
suppression. In some instances, say in crisis
management, well thought-out protocols, accurately
executed, are appropriate. For more complex
decisions, it would be wrong to respond with a reaction
based on what has been done in the past. Our reptilian
brain remembers the previous time something was
done, it may not be appropriate to repeat the action
just because it ‘feels’ somehow right.
Instinct as a source of wisdom is also important
to tap into. It gets forgotten or is not valued in
organisational contexts. Malcolm Gladwell’s book
‘Blink’ discusses this. We don’t know yet if the
reptilian brain is involved in intuitions, but the parietal
lobes of the brain are. When we experience a sensory
input one can choose how to react to it. We have an
opportunity to say ‘I know I am feeling this way, I am
going to give it a chance, I will take a deep breath, and
shift towards curiosity and exploration as opposed to
action’. Time spent in reflection, silence, meditation,
is very helpful.
ISB INSIGHT
Face to face
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Spring 09
Are awareness and choice making
equally important for leaders as well as teams?
S Ramnarayan:
Pawar:
Absolutely. When a leader intuitively senses
something, he can choose to suspend an immediate
decision, ask the team to discuss further, even if
there may be tension or disagreement over an issue.
A leader can use silence effectively, to signal deep
thinking or disagreement etc. Sometimes silence can
create a degree of tension, which in turn can raise
awareness. Assuming that the leader has created an
environment of trust, he/she can share misgivings
or admit to limitations, the anxiety that triggers the
stress or survival response of flight or fight, can be
appeased amongst team members. It can shift from
defensiveness into curiosity, learning, understanding
the root cause. Chemically you can avoid the surge
of adrenalin which increases the heart rate, shallow
breathing etc.
Performance evaluation and
coaching are at loggerheads
with each other. It is a conflict
of interest, unless you have a
truly enlightened boss, which
is very rare.
Have studies been done on individuals
and teams in situations of trust and mistrust?
Ramnarayan:
Pawar: For individuals, yes. Like EEG, which measures
the brain wave and the electrical activity of different
parts of the brain during different situations; biofeedback, which looks at the conductivity
of the skin surface, sweating, temperature,
pulse rate, blood pressure, breathing, etc.
They can be indirect indicators of how
much stress the individual is experiencing
at the time. Functional MRI, a very
powerful but expensive tool, shows which
parts of the brain are activated during
certain situations.
S Ramnarayan is Clinical
Professor of Organisational
Behaviour at the ISB and
Member, Management
Council of ISB’s Centre for
Leadership, Innovation,
and Change (CLIC). He
pursues research in
Change Management,
leadership development,
and decision making
in complex situations
characterised by
uncertainty
Is motivation or believing
in the cause more important for bringing
about organisational change than just the
reasons for change?
Ramnarayan:
I have found in my
research that if people are not included
in the change process, the biology of
the brain responds very much in the
Sudhanshu Palsule:
Face to face
same way that it saw danger 45,000 years ago. Biochemically the brain cannot tell the difference between
organisational change and an approaching tiger. Kotter
has done a good job of discussing the illusion of the
urgency of change.
Pawar:
When you are included, you identify with
what is being created, there is safety in that. You are
activating the pre-frontal areas of the brain. If you
are not included, there is resistance, stress, maybe
sabotage. Emotion is the fuel for change. Consider
an organisation as a living entity, a certain degree of
stress is necessary for any living organism to adapt,
without that the organism becomes vulnerable. The
leader’s job is to convey that in a healthy fashion. The
emerging role of a 21st century leader is really ‘sensemaking’.
Leaders know that it is essential for
people to feel included, yet my research shows
that it is precisely what leaders don’t do. Is there a
neurological explanation to that?
Ramnarayan:
Many leaders suffer from attention deficit
disorder. Their stress levels are high, the executive
brain which is responsible for making sure that
people are included, is sub-optimised. It is not done
diabolically or deliberately, leaders are not conscious
about it. I read that the average time a CEO spends
making a decision is probably thirty seconds.
Palsule:
Ramnarayan: Power plays an important role. Successful
people may want centrality most of the time. Do they
want to share the glory?
Ego blinds you, it sub-optimises perception.
The brain probably sees it similar to a stress situation.
Manoj talks about peer-stress, that is where the brain
gets distorted and you don’t see things that are in
front of you, and business leaders end up making
faulty decisions.
Palsule:
Pawar:
Part of the leader’s job is to perceive reality as
it happens. But when ego and desire come into play
there is a distortion. This is where wisdom traditions
give us more insight 'The Geeta' says you must do
your duty but you don’t have any right to the fruits
of that.
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ISB INSIGHT
If I were not cognizant of the fruit of
my labour, why would I start in the first place? There
seems to be a gap in the interpretation of this oftquoted verse from 'The Geeta'.
Ramnarayan:
Pawar:
Part of your concentration is wasted in paying
attention to immediate rewards. It has something to
do with the reward mechanism in our brain. If I am
not attached to the fruit of the labour, the brain moves
on to a long-term reward mechanism.
Many leaders suffer from
attention deficit disorder. The
average time a CEO spends
making a decision is probably
thirty seconds.
Pawar:
The more you want it, the more likely you
worry about it, and the more likely you are going
to make a mistake. Perhaps that was the original
intent of that phrase. As a coach I know that it takes
a long time for CEOs to get over their sense of selfimportance. The more I spend time with people at
the top, the more I realise that they are much more
insecure than the people below. Also, because they
are in denial, it makes it worse. Coaching is very
helpful.
Palsule:
There is a lot of power in the questions we
ask ourselves, in listening to the talk we have inside of
our brains, in being honest with ourselves. We love to
collude; we may not want to see ourselves the way we
actually are. A good relationship can help in reflecting
the real you.
Can one’s boss be your coach or does
it have to be someone external? The boss is also an
evaluator.
Ramnarayan:
Pawar:
Pawar:
When I see a patient with diabetes for the
first time, you look at the test results and know that
if some lifestyle changes are not done, this person is
in serious danger. But you can’t say, ‘I am the one
that knows what is best for you’. You have to build
trust first. Then you have to match where they are
currently. That may mean sacrificing your desires to
move forward as a coach, but it is important to meet
the person where he/she is at, know what is important
to them, what are their drivers, etc.
After someone learns to deal with
fear, anxiety etc, would he/she be able to continue
effectively at work without further coaching?
Ramnarayan:
You have to be prepared to observe yourself
and become more aware of things as they happen, not retrospectively. People are inherently
suited to do this themselves. They don’t need a
coach. A coach is simply a mirror in which you
can see yourself. More importantly, people develop
through relationships. Every relationship shows
us where we are lacking. Sometimes we are blind
to our behaviours, what we may consider as our
strengths, somebody else from another perspective
may think otherwise.
Palsule:
ISB INSIGHT
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Spring 09
It is possible for a boss to have coach like
behaviours. But ulterior motives can be a danger, it is
a tricky situation.
Performance evaluation and coaching are at
loggerheads with each other. It is a conflict of interest,
unless you have a truly enlightened boss, which is very
rare.
Palsule:
We talked about
effective conversations, about
helping people getting in touch,
becoming aware, about choice
making ability. Can you share
some instances which conveyed
these messages powerfully to
people?
Ramnarayan:
Pawar:
Two examples come
to mind. I had a patient who
was dying and her family was
quarrelling over what should
be done for her, everybody was
getting angry. I focused the
conversations to explain that
ultimately the individual wants
dignity and happiness. All of
Face to face
Sudhanshu Palsule
is Visiting Professor,
Helsinki School of
Economics and the ISB.
He works internationally
as a consultant, coach
and educator, helping
individuals, teams and
organisations to engage
in transformation and
renewal.
a sudden the self-interest of the family members
washed away.
In an organisational context, I had an ex-military
commander as a client, he was a command-andcontrol type. However, he struggled with a younger
work force with very different expectations. We did a
lot of exercises together. I made him visualise certain
situations and observe his reactions – ‘imagine this
person telling you this, do you feel your hands getting
moist, do you feel your heart rate going up?’ Then
we interrupted that neural path and did something
different like a breathing task. Over time he was
able to repeat that in real life situations – breaking
the old neural paths and the patterns of behaviour.
The big test for him was to have a conversation with
one particular individual he had alienated, and in
the course of that conversation tell him to manage
his anger. He surprised me by changing himself. You
experience magic when groups of people finally learn
to have conversations with each other that are hard
and painful, and eventually start performing together.
behavioural therapy in psychology where you actively
and consciously disrupt a pattern which has forced
the brain to go into the default way of doing things
you have done for twenty years. And that can be fun,
people can take control of that process.
S Ramnarayan:
You talked about leaders feeling
insecure.
In my research, during the last five years,
I have found that the one emotion that we do not
acknowledge enough in our corporations is ‘Fear’. Fear
is a rampant emotion in companies, it is pervasive and
deep, and senior executives have tremendous amount
of fear. Once that takes root, it brings up all the other
smaller emotions into play.
Palsule:
What are the reasons for fear in a
corporate situation other than risky business strategies
or failure?
Ramnarayan:
It is not the fear of not knowing whether I
will succeed or not, it is a fear of not being included.
It is a fear of feeling ostracised, a fear of not having
enough knowledge about things.
Fear is a signal, it is important to find what it is
pointing to. It may be a threat to the way somebody
perceives himself. In another case it may be that the
individual is so comfortable in a particular state that any
change is fearful. Lack of self esteem causes fear. Am
I good enough or not? People who have made it into
the executive team still have doubts about being good
enough. Emotions are part of the same vicious cycle,
a problem in one immediately affects all the others.
For most people it may not be felt at a conscious level.
The first step is to be aware of the fear, and not let it
paralyse you. But when fear becomes pathological as a
stress response, it sets in for everything that happens
at all times. It becomes a default mechanism. How do
you tell somebody not to be scared? The pre-frontal
cortex is no longer working, the fear is so deep. In
such times it is better to use behavioural psychology
to tackle the problem.
Palsule:
Ramnarayan: Can you elaborate on how one can break
a pattern behaviour?
Palsule:
Manoj Pawar is Adjunct
Professor, University of
Denver. As a dialogue
practitioner and facilitator,
he enables clients to have
challenging conversations
which help evolve to a
more effective strategic
thinking, decision-making
and execution.
There are some people whose self-awareness
is in reasonably good shape, but they never
learned some basic behaviours. Working on
self-awareness is a long-term process, often
it takes a lifetime, it is not easy. But you can
simultaneously work on your behaviour. Let
me take the cue from sports psychology. If
Tiger Woods has had a couple of bad swings
on a day in the green, he will make it a
point that evening to go back on the green
and keep swinging until he finds the right
swing. He knows that his muscle memory is
critical. When he comes back the next day
his muscles have to pick up that good swing
and not the bad swing. You can actually
change behaviour by replacing it with
something else. Do something different
and then do it again and again. It is like
Face to face
Spring 09
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ISB INSIGHT
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LO_ISBinsightE090310FB190.5x279.4.indd 1
6.3.2009 9:11:50
Face to Face
Let a Thousand
Flowers Bloom
WE NEED A NEW STORY OF CAPITALISM, WE NEED FREEDOM FOR ENTREPRENEURSHIP
The financial downturn has changed the story of capitalism and entrepreneurship. During a CEE programme on
Strategic Leadership at the ISB, Edward Freeman and Sankar Venkatraman discuss on how to script a new story,
and how business schools can help alleviate such a crisis in the future.
Sankar Venkatraman:
Is the current financial crisis a
product of mismanagement by senior business leaders
and the captains of capitalism? Is it the death of
capitalism?
worthwhile for our children. Sankar, what according
to you is the connection between this financial
meltdown and entrepreneurial economies like Brazil
and India?
The narrow idea that capitalism
is only about creating value for shareholders, that
business is only about profits, and the excesses that
the story has led to around the world, is badly broken.
Adam Smith, the father of capitalism, understood
that capitalism works only when people tell the truth
and have a sense of justice. Ethics and business go
together at the core of capitalism. Capitalism is
fundamentally about creating value for customers,
suppliers, employees, and the community. Capitalism
is a system of social co-operation. It is how we work
together to create value and trade with each other. We
seem to have forgotten all this because we understood
capitalism way too narrowly.
This is a moment for us to tell a new story - that
which has at its centre responsibility, sustainability and
a sense of ethics. We can be the generation that makes
business in capitalism better and leave something
Venkatraman: An entrepreneur solves problems, an
entrepreneur look for opportunities, an entrepreneur
comes up with creative solutions to issues. During
previous crises, back in the 70’s, when we had the
oil shock and huge inflation, entrepreneurs created
some of the best businesses, invented new industries.
Entrepreneurs create something new with very little
resources. That is their contribution to society.
Microsoft is a very good example.
In any crisis, we have the seeds of the next
revolution. The financial crisis has affected everyone.
While everybody shares the cost of what has happened,
everyone also has an opportunity and a responsibility
to contribute to coming out of this meltdown. The
financial crisis is also an opportunity to do things
differently. The financial crisis cries out for new ideas,
it demands that we do things in a different way. This is
a great time for entrepreneurship to thrive.
Edward Freeman:
face to face
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ISB INSIGHT
Freeman: What would your advice be to policy makers
about creating a more entrepreneurial economy, or
should they be trying to regulate capitalism?
again. If that were the rally that drives our business
schools, rather than a lot of techniques to re-arrange
value on Wall Street, we would have a much better
world.
Venkatraman: One of the ways by which we are trying
to address the financial crisis is by pouring lots of
capital and resources into existing firms, especially
firms that have not done well or have not fulfilled their
promise and their responsibility. Trying new ideas and
providing capital to a sector which might come up
with new ideas and new solutions to the problems that
we have, is a good alternative. Policy makers have not
really thought over well about how to allocate capital.
The knee-jerk reaction is to say that capitalism is
broken, so let’s regulate more. Thus, we often end
up over-regulating or regulate inappropriately. We
need freedom for entrepreneurship and enterprise to
come out of this crisis, and we need to enable as many
people as possible to participate in this process.
There are many people who say that business
schools have created leaders without a foundation
of ethics and that the financial crisis is partly a
contribution of these Schools. Business schools thus
have a tremendous role to play in the process of reinventing ourselves and coming out of this crisis.
Teaching is only one part of our
function. In business schools we spend a lot of time
doing research. What kind of research ought we to be
doing? How should the scholar approach research?
Venkatraman:
beings. We need to return to a deep understanding of
who we are as human beings, how we create ourselves
and our communities. Unless we see business as a
deeply human institution, such a crisis will happen
I am a pragmatist. I think we should let a
thousand flowers bloom. We should not have people
who approach business from the
standpoint of a scientist. They
try to predict and control what
is going to happen. We should
have people who treat business
as an art, who try to understand
the creative part of business.
We should have people who are
like art critics trying to make
sense of what managers and
business people do. We should
Sankaran Venkataraman is
see business schools as a market the MasterCard Professor of
Administration at
place of ideas. In the US, we Business
the Darden Graduate School
have adopted a scientific model. of Business Administration,
University of Virginia. He is
But we have excluded the a member of the Strategy,
and Ethics
humanities, the fine arts and the Entrepreneurship
area at Darden and teaches
creative arts. We underestimate MBA and executive level
in strategy and
the humanity of people, their courses
entrepreneurship
ability to create, their ability
to push back and to forge new
ground. We should put this in
the centre of business schools
and that means our research
has to be much broader. There
is not one model that has
monopoly on the truth. There
are lots of avenues to truth.
Research in business schools is
just so narrow that reading the Edward Freeman is the Elis
top journals is frankly not very and Signe Olsson Professor
of Business Administration
interesting.
at The Darden School,
Great business schools are Academic Director of the
Business Roundtable
going to be those that change the Institute for Corporate Ethics,
co-Director of Darden's
story of capitalism and through and
Olsson Centre for Applied
that bring about change in our Ethics, one of the world's
leading academic centres for
societies. The change process is the study of ethics.
of course very difficult.
ISB INSIGHT
face to face
That is partly right. The story that we tell
students about business doesn’t include ethics or
responsibility at the core, and that needs to change.
We need a story that says we are going to create a
value for stakeholders in a responsible and sustainable
way. Many business schools, for good reason, rushed
to adopt a scientific model. This has led to a deemphasis on the fact that business is about human
Freeman:
The financial crisis cries out
for new ideas, it demands
that we do things in a different
way. This is a great time for
entrepreneurship to thrive.
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Spring 09
Freeman:
Knowledge Sessions
Strategy in a
Flat World
A NEW-RESEARCH ECOSYSTEM IN THE DOMAIN OF STRATEGY
The Strategic Management Society hosted the International Strategy Conference at the ISB. The aim was to generate and nurture research connections in the academic world, and develop and disseminate insights on strategic
management processes
Sixty Deans from leading global and Indian B Schools, representatives from 120 international and 45 Indian
business schools, a galaxy of leaders from the Indian industry – that was the roll call at the three-day long
International Strategy Conference held by the Strategic Management Society (SMS), USA, hosted at the ISB.
The theme was ‘Emerging India: Strategic Innovations in a Flat World’. Conference Convenor Professor
CK Prahalad, Paul and Ruth McCracken Distinguished University Professor at the Ross School of Business,
University of Michigan, said that the event aimed to create research connections, and that it was all about
“curiosity and collaborations, and about succession planning in the academic community.”
It was the first time that the SMS held a conference in India. The Conference comprised four key elements
- human capital development workshops for faculty and doctoral students from Indian business schools,
plenary sessions between leaders from India Inc. and global strategy experts, research paper sessions, where
around 100 research papers were presented, and a Deans Conclave where leaders from US, Europe Asian and
Indian Business schools interacted to explore opportunities and challenges in institutionalising research in
Indian Business Schools.
The Co-chairs of the Conclave were Professor Charles Dhanaraj, University of Western Ontario and
Professor MB Sarkar, Temple University. India Co-chairs comprised Professor Rishikesha Krishnan, IIM,
Bangalore, and Professor Sougata Ray, IIM, Calcutta.
Also present at the Conference was Harbir Singh, Professor of Management at the Wharton School,
and Area Leader of Strategy at the ISB. He said the Conference was a means to learn about “new models in
leadership, business and innovation that arise from the Indian setting.”
Professor Sarkar noted that for India to move into the next phase of development, we need a completely
new set of innovation capabilities. “We are looking at a system where we can create at least 15 more Infosys
like stories. We are talking about a very different mind set within organisations which will take them from
the $5-7 billion range to $20 billion in the next 10-15 years,” he said. The Conference, he suggested, was an
opportunity to trigger off conversations in this area.
Deans Conclave – ‘It is Doable’
The Deans Conclave was a signature event where business school leaders from around the world, complemented
by their Indian counterparts, explored how emerging markets can enhance the future of management education
and research.
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A panel discussion examined the changes in the role and function of Business Schools. Conclave panellist
included Dean Robert J Dolan, University of Michigan Business School, Dean Edward A. Snyde, Chicago
Booth, Dean Jordi Canals, IESE Business School, Shekhar Chaudhuri, Director, IIM Calcutta and Dean M
Rammohan Rao from ISB. The panel was moderated by CK Prahalad and Tarun Khanna, Professor, Harvard
Business School.
“A major change within B Schools cannot be done by a single agency. It has to be achieved at multiple fronts
. Businesses have to drive the change, they have to demand the change from B schools, and the Deans have to
support the changes and drive it inside, the faculty must be willing to take it up as well. Here at the Conference,
for once, everyone listened to each other and said–‘yes it’s doable’,” said Professor Dhanaraj, underlining the
importance of the Deans meet.
Scholars Consortium – Connect Through Research
During the Doctoral Consortium, the Junior Faculty Consortia and the Senior Faculty
Consultative Workshop, scholars from leading business schools around the world
engaged with the brightest Indian academics and doctoral students. The consortium
and the workshop provided an opportunity for young business school scholars to
gain insights on the research and publication process from internationally renowned
senior strategy scholars. At the Doctoral
Consortium, the four Chairs present
It was all about curiosity
were Ram Mudambi, Temple University,
and collaborations, and
Raveendra Chittoor, IIM, Calcutta,
about succession planning Jasjit Singh, INSEAD, and Krishnan
Narayanan, IIT, Mumbai. The Faculty
in the academic community. Consortium was led by Gerard George,
Imperial College London and Phanish
Puranam, London Business School. The Senior Faculty Consultative workshop was
represented by Sankaran Manikutty, IIM, Ahmedabad, Prashant Salwan, IIM, Indore,
and Michael A. Hitt, Texas A&M University. The faculty facilitators for the workshop
were Jay Barney, Ohio State University, and Michael A. Hitt,
Plenary Panels – Extraordinary Stories
During the various plenary panels, Indian corporate leaders engaged with world
renowned strategy scholars and thought-leaders to discuss business model innovations
from India, about leadership issues, about models for globalisation, and about
multinational innovations. In the words of Professor Prahalad the carefully chosen
panellists represented “an interesting spectrum of people building a ‘disruptive
model’.”
The panels recounted stories of CEOs who have spearheaded innovative business
such as delivering world class mobile service with a completely outsourced business
model, creating a unique technology platform in oil and gas exploration, altering the
discovery and development process of complex pharmaceuticals, pioneering a global
delivery platform for complex information technology based services etc.
The SMS Conference, in all, was a unique platform to integrate strategy scholars
and executives in India with their global counterparts in order to co-learn and cocreate a greater enterprise and to define an ambitious research agenda that can help
propel the next stage of inquiry in the field of strategy. The Conference was certainly
about creating a new-research eco system in the arena of strategy.
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Knowledge Sessions
Conference Convenor,
Professor CK Prahalad
Professor MB Sarkar,
Temple University
Charles Dhanaraj,
University of Western
Ontario
Knowledge Sessions
High-point in
Consumer Research
INTERACTIONS ON CONSUMER RESEARCH ISSUES IN THE INDIAN CONTEXT
The recently hosted Asia-Pacific Conference of the Association for Consumer Research (ACR) at the ISB brought
together researchers, public policy makers and practicing marketers interested in the study of consumer
behaviour
This high-profile Conference comprised plenary sessions, round table discussions, working paper track chairs
and film festival tracks. Co-Chair of the Conference, Professor Dipankar Chakravarti from University of
Colorado, had this to say about the objective of the Conference, “to lead to interactions on consumer research
issues in the Indian context, to create opportunities for us scholars to understand that as more and more
research will emerge, it will help us develop new frameworks and build new concepts which will enrich this
field of study.”
The other Co-chairs of the event were Professor Rajiv Vaidyanathan, University of Minnesota Duluth and
Professor Sridhar Samu from the ISB. Professor Jagmohan Raju from the Wharton School, who is also the Area
Leader of Marketing at the ISB, participated in the Conference along with other distinguished scholars from
across the globe.
In the plenary session, ‘Consumer Behaviour at the Bottom of the Pyramid’, guest speaker Verghese Jacob,
Byrraju Foundation, talked about the ‘great paradoxes in this great country’, where there is, on one hand,
great progress at the higher end of technology, and management, and on the other a great concern about those
who live in 600,000 villages of India. Demystifying the popular phrase ‘Fortune at the Bottom of the Pyramid’,
Jacob said that the fortune doesn’t lie in economic resources but in the innovations and optimisation of the
resources of those at the bottom of the pyramid, and in their positive attitude.
The second plenary was titled ‘Consumer India: An Emerging Profile’. The speaker was leading thoughtleader on market strategy and consumer behaviour, Rama Bijapurkar. She presented an innovative framework
for examining the complex plurality of Consumer India in an effort to identify new research possibilities. “We
are a large economy of poor people like never before, a lot of people consuming a little bit each that adds up
to a lot. Poor India is not backward, they are collectively rich,” she mentioned.
Some special sessions at the Conference dealt with themes like the ‘Role of Advertising and Technology
Consumption’, ‘Socio-Culturally Embedded Literacy in
an Emerging Economy’ etc. Some Roundtable Sessions
to reckon with were ‘Hyper-westernisation and the Asian
Consumer’, and ‘Culture Re-appropriation in the Global
Consumptionscape’.
The Conference also included several film tracks
which provided moving insights into many relevant socioeconomic themes like the changing role of home design
and how it relates to gender identity , the complexities
of empowering the citizen-consumer, how audio-visual
Rajiv Vaidyanathan,
Dipankar Chakravarti,
Rama Bijapurkar
cues in Indian culture are used as a means of separating
University of Minnesota
University of Colorado
the sacred from the profane.
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Cover Story
Knowledge Sessions
ISIS 2008 – Trends in
the Digital Domain
ON THE CHANGING NATURE OF IT AND IT ENABLED SERVICES
The Centre for Information Economy (CITNE) at the ISB hosted the third International Symposium of Information
Systems (ISIS 2008).
The symposium brought together leading academic researchers and industry thought leaders to confer and
debate on research topics, which are relevant and rigorous, in the IT domain
The aim was to deliberate on the role of IT in enhancing global competitiveness and economic development,
and to discuss current unpublished work and research topics. The co-chairs of the event were Professor Ravi
Bapna, University of Minnesota, and CITNE, ISB, Professor Rajiv Banker, Temple, University and Professor V
Sambamurthy, Michigan State.
The keynote speaker at the symposium was Kris Gopalkrishnan, CEO and MD, Infosys. Gopalkrishnan
noted the IT industry has grown from providing technical solutions to business solutions. It has ventured into
fields like consultancy, system integration, infrastructure management, and has emerged as a cross-multiple and
cross-geographical industry. “The IT industry has gone through significant changes, but has survived and done
well for itself,” he said. According to him, the two key pillars that have supported the Indian IT industry are –
“global competitiveness and relentless focus on quality”. He explained the journey through the last 60 years,
when the industry metamorphosed from ‘mainframe to mini computers to PC to mobile to pervasive.’ For the
last 30 years, he noted, the IT industry had been a global business right from the start, has had online services,
has always been globally competitive, has introduced global delivery model etc. Gopalkrishnan mentioned
that all along the industry never compromised on quality. He compared the Indian IT services industry to the
Japanese car manufacturers where the focus was and continues to be on ‘quality’. He said that the need was to
adopt new models of engagement and move from “cost as a barrier to growth to cost as a fuel for growth, from
customer loyalty through good services to customer loyalty through rapid innovation, from spending more on
information to making money from information, and from winning in the straightway to winning in turns."
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An important trend, noted by the panellists, was how the change
in use by younger generation is fundamentally changing the way IT
services are being delivered and consumed.
The keynote address was followed by three panel discussions by prominent industry leaders. The first
panel discussion, ‘Captive versus Third Parties: Defining the Value-Efficiency Frontier’, presented views
from both the service providers (Kashyap Kompella, TPI, Pari Natranjan, Zinnov) and consumers (Amaresh
Ramaswamy, Microsoft) perspective. The panellists emphasised the need for deep competency like highly
skilled programmers and senior level architects. The Indian ecosystem, they conveyed, is still weak and the
emphasis is still on programme management skills rather than research. They also elaborated on the changing
nature of IT services from pure play cost advantage to value addition through
breakthrough innovation and co-creation with customers. Emphasis was laid
on competency creation in specific area and the increased role of Indian
leadership in global responsibilities.
The second panel, had panellist Bipin Paracha, Wipro, Prashun Datta,
Reliance Energy; Manik Gupta, Google, and Narasimham V Peri, IBM. They
deliberated upon ‘Transformational IT Management: New Trends in IT
Consumption for Business Value’. An important trend, noted by the panellists,
was how the change in use by younger generation is fundamentally changing
the way IT services are being delivered and consumed. They also stressed the
importance of Business Intelligence and Transformational Analytics, which
helps convert data into information and hence drive transformation. Panellists
also spoke about how one can add value to the business and sustain it by
understanding the basic business nature and aligning IT with it accordingly, Kris Gopalkrishnan, CEO and MD,
Infosys
and about the new trends in IT from an innovation perspective, where
everything is provided by the customers and consumers.
The third panel consisting of Prithvi Shergill, Accenture; Ashok Reddy,
Teamlease; Tan Moorthy, Infosys and Professor Ritu Agarwal, University of
Maryland talked about ‘Human Capital Development in the IT/ITes Sector.’
The panel highlighted the fact that there is a huge demographic dividend from
India’s population of more than one billion, and that we need to address
two major issues: 'under-employment and un-employability’. The discussion
concluded with the need to imbibe the right values and ethics, which are very
important at all leadership levels.
Following the Industry Day, the next two days focused on paper
presentations by leading researchers and academicians from across the globe
on topics related to outsourcing governance and risk management, business
value of IT and software engineering, innovative IT applications and adaptation Ravi Bapna , Executive Director ,
CITNE
in emerging markets.
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Knowledge Sessions
In Brief
New Centre on
Emerging Market
Solutions
Strategy Insights
for Indian Railways
The sixth Centre of Excellence, the Centre
for Emerging Markets Solutions (CEMS), was
recently launched at the ISB. The Centre's
vision is to focus on the issues of large, rapidly
growing economies like India and China and
other emerging markets. At its core, CEMS has
been set up with a belief that market-based
solutions exist for a majority of the developing
world's problems, as long as we develop new
products and services, demonstrate proof-ofconcept, and attract investment capital from
a variety of investors from the global capital
markets.
Currently, CEMS works across four
verticals - Small and Medium Enterprise
(SME), Urbanisation and Affordable Housing,
Energy and Healthcare. Though CEMS has
begun its work by focussing on India, its
mandate is broader and stretches across all
emerging markets.
Professor Reuben Abraham will be the
Executive Director of CEMS, and the Centre's
Advisory Board includes Brooks Entwistle
(CEO, Goldman Sachs India), Don Mohanlal
(CEO, Khemka Foundation), Stewart Paperin
(Exec Vice President, Soros Foundation),
Ananth Nageswaran (CIO, Julius Baer), William
Haseltine (Founder, Human Genome Co.) and
Ajit Rangnekar (Dean, ISB).
in brief
The win-win turn-around strategy of the Indian
railways - from a debt ridden enterprise to a
profit making, dynamic and exemplary public
sector unit – has become classroom reference
in many business schools. After a fairy tale
recovery, from the verge of a fatal bankruptcy,
bearing a financial liability of over US $15.06
billion, currently the Indian Railways is one of
the biggest money-spinners in the country.
To keep intact the role of strategic
policy initiatives, the Indian Railways is now
investing in learning and development for its
senior management. At a recently conducted
Strategic Management workshop at the ISB,
the top brass of the Indian Railways were seen
developing competencies and skills, strategic
thinking, cross-functional perspective, and
learning how to manage complexity and
uncertainty in their current roles.
The course structure was geared to
develop a general manager’s perspective on
decision making; develop understanding of
own department’s role within Indian Railways’
overall goals; long-term thinking and planning;
how to lead change, moving from ideas to
implementation etc.
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ISB among top 15
global B Schools
Art in
Boardroom
Five places up since last year’s ranking of
20 in the Financial Times, London global
MBA rankings, this year ISB stands tall at
15. The 2009 FT rankings place the ISB as
second among Asian business schools,
closely following CEIBS China. The Financial
Times rankings was developed on criteria like
distinguished faculty, pioneering research,
alumni career progression, diversity, innovative
curriculum, excellence in entrepreneurship,
etc.
“The ISB’s vision is to make high quality
education accessible to a large number of
aspirants, and I am delighted that the School
is growing steadily to fulfil that vision,” said
Rajat Gupta, Chairman, commemorating the
proud moment. Dean Ajit Rangnekar noted
that rankings are becoming ‘global’ in nature,
and that while 5 -10 years such leagues were
dominated by American business schools,
today Asian and European schools are making
strong marks. The ISB and CEIBS, Dean
Rangnekar pointed out, were both products of
collaboration. “This is a clear message to the
government that partnering and collaboration
is the way ahead to replicate success fast and
quick,” he said.
Business and arts are increasingly having
more to do with each other. The Business
and Arts Programme at the ISB is one such
extension of the curriculum, where reputed
artists are invited to live on campus for a week
and interact with the ISB community, while
pursuing their creative activities.
Recently two young artists Aviral Saxena
and Amarnath Sharma exposed students
to the nuances of creativity which in turn
spurs critical thinking – both being essential
ingredients of business learning. Such
interactions help students discover how
to express unstructured thought, how to
create elegant solutions to issues within the
limitations of a medium, how to highlight the
power of creative thought.
Painter Amarnath Sharma whose medium
was oil on canvas and his style “figurative”,
created a portrait of a white collar executive
juxtaposed with a number of machineries.
Sharma says that his art is all about
integrating man and machine. Graffiti artist
Aviral Saxena worked at a graffiti symbol
on acrylic. He explained that it was actually
graphic writing, also known as “tagging”, and
his final product resembled an ensemble of
fluorescent symbols.
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in brief
Book Review
Thunder from the east
There are three kinds of academics in the United
States: those who only write for fellow academics;
those who would love to be public intellectuals,
but do not have the skill to write free of jargon;
and those who excel at both academic and popular
writing. With the publication of this book, Tarun
Khanna, Jorge Paulo Lemann Professor at the
Harvard Business School (HBS), has staked serious
claim to the last category. By combining academic
knowledge with the eye of a journalistic observer,
he has produced a thoughtful, accessible, and wellwritten book on the ongoing economic revolutions
in China and India.
Khanna’s narrative strategy is
seductively simple.Picking some
aspect of economic life in each
country, almost every chapter is
built around a paired comparison.
To make his points, he juxtaposes
painstakingly collected stories of
firms, personalities, and projects
from each country. We get fascinating
accounts of how cities can be built
virtually overnight in China, but
Mumbai can neither transform the
Machchi Village near Cuffe Parade,
nor overhaul Dharavi, Asia’s largest
slum; how India’s capital markets became worldclass by the turn of the century, whereas the state’s
heavy hand in China kept its financial markets
backward; how software boomed in India, but
not in China; why China attracted more foreign
direct investment than India; how China and India
had dramatically different strategies towards their
diasporas, with equally dramatic results as overseas
Chinese simply poured money into China but NRI
funds came slowly; how China’s reforms started
with the villages, whereas India has yet to transform
its monstrously controlled agricultural mandis; how
book review
Billions of Entrepreneurs: How China and
India are Reshaping their Futures and Yours
by Tarun Khanna
Adapted from the review
by Ashutosh Varshney
for India Today, Living Media Publications
PUBLISHERS: Viking
Pages: 312 Price: Rs 595
India’s “soft power” in the form of Bollywood,
intellectuals and gurus continues to grow, but China
only specialises in “hard power”.
Khanna’s conclusion is that instead of trying to
view each other as adversaries, India and China, great
powers in the making, need to open up to, and learn
from, each other. The synergies are immense, but
heavily underexploited. General Electric is among
the few companies in the world to have reaped these
synergies.
Khanna finds China more ready to learn from
India, especially from its software prowess, but India
less willing to figure out how China achieved its great
manufacturing feats. The number of China specialists
in India—in academia, journalism, business and
politics—is pitifully unsubstantial. India’s curiosity
sorely needs a quick Chinese enlargement.
The author’s view of caste will not be acceptable
to most serious students of Indian politics. He
finds India’s caste politics distasteful; it is also, in
his view, highly injurious to economic progress. It
should be noted that south India, which witnessed
an undermining of the caste order by the late 1960s,
is now booming. Millions of entrepreneurs, big and
small, appear to have emerged from the lower rungs
of south India’s traditional caste order. If anything,
given his main thesis, Khanna should welcome a
politically induced expansion of the entrepreneurial
pool.
Khanna’s book is a brilliant achievement. It
deserves to be widely read.
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In this Issue: STRATEGIES FOR THE SPOKEN WEB: GURUDUTT BANAVAR, DIRECTOR OF IBM INDIA RESEARCH
LABORATORY ON THE MOBILE PHONE AS A POWERFUL NEW PLATFORM • WAR AGAINST TERROR: GENERAL
ARJUN RAY ON HOW TO COMBAT THE BIGGEST EVIL OF OUR TIMES • BRAIN MAPPING THE LEADER: MODERN
RESEARCH ON THE BRAIN THROWS LIGHT ON LEADERSHIP BEHAVIOUR
ISB
INSIGHT
spring 09
Winning
Strategies
Indian School of Business
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