Found this precis of an old article co-authored with Prof. Sumantra Ghoshal

Link: http://economictimes.indiatimes.com/articleshow/10085233.cms

27 May, 2002, 08.24AM IST, Sumantra Ghoshal and Meeta Sengupta, Sumantra Ghoshal and Meeta Sengupta

Managing radical performance improvement

Sweet `n’ Sour He stands with the likes of Peter Drucker, Stephen Covey and Warren Bennis. Sumantra Ghoshal, Robert P Bauman Professor of Strategic Leadership at the London Business School, is a post-modern strategy man, recently named by The Economist as one of the “EuroGurus” in management. Professor Ghoshal starts an exclusive regular series for Corporate Dossier on a variety of issues pertinent to the Indian corporate context. Dr Ghoshal has written nine books on management, including Managing Across Borders: The Transnational Solution (co-authored with Professor Christopher Bartlett). His more recent book – The Individualised Corporation, co-authored again with Bartlett – has won him accolades in the management and consulting world. With doctoral degrees from both MIT and Harvard, Ghoshal has over 40 published articles to his credit, with 6 articles in the Havard Business Review. Over 25 cases have won him awards from the European Foundation for Management Development and the European Case Clearing House. This week, he kicks off his series with Managing Radical Performance Improvement. Drawing liberally from the Indian corporate experience, Dr Ghoshal argues that sustained corporate performance is based on the ability to manage the tension between two symbiotic forces: the need for ongoing improvement in operational productivity through rationalisation in existing activities and the need for growth through continuous revitalisation of strategy. IN April 1993, Business India hailed Indian Oxygen (since renamed BOC India) as “one of the major comeback stories of the Indian corporate arena in recent times”. The company had rationalised its portfolio, selling off the electrodes business; restructured its manufacturing base, closing a number of inefficient plants and replacing them with a few high-scale units with substantially lower cost structures; and reduced its workforce from 5,400 in 1989 to 2,100 in 1993. As a result of this rationalisation, restructuring and retrenchment, the company’s profits had jumped from Rs25 lakh in 1990 to Rs705 lakh in 1993, enhancing its market value from Rs45 crore to a staggering Rs480 crore. Five years later, however, the transformation lies in tatters, which finds reflection in a market value that is now down to Rs191 crore. In the corporate league table, the company has fallen off to a remote 368th position – indeed, a pale shadow of what was once amongst the most visible and prestigious multinational units in the country. So, What Went Wrong? What went wrong was that while the company had learnt to cut, to restructure, to rationalise, it had not learnt to grow. The management of Indian Oxygen squeezed costs, controlled budgets and improved productivity, but lacked the energy and courage required for creating and exploiting new opportunities. As a result, it got caught in a dangerous negative spiral – every cost cut led to a temporary improvement but, ultimately, only created the need for another cut. Indian corporate experience provides examples of the reverse case as well – of companies that have tried to achieve spectacular overall performance by focusing on growth alone, without any attention to productivity improvement. Essar is a case in point. Starting from the audacious bet on their sponge iron plant, the Ruia brothers have grown to a Rs3,300-crore conglomerate that lacks underlying competitiveness in any of its core businesses. Here too, after an initial phase of euphoria, performance has plunged, beating down the group’s stock price from a high of Rs126 in 1994 to Rs16 in 1998. The Sweet And Sour Cycle The underlying lesson is both simple and universal. Sustained superior corporate performance is based on the ability to manage the tension between two symbiotic forces – the need for ongoing improvement in operational performance and productivity through constant rationalisation in existing activities, and the need for growth and expansion through continuous revitalisation of strategy, organisation and people. There is nothing new about either of these two needs. The problem is that most managers see the processes of rationalisation and revitalisation as mutually exclusive. Rationalisation is often unpleasant – “sour”. Few managers enjoy closing plants, selling businesses, sacking people. Revitalisation, on the other hand, is “sweet”. Most managers love growth; they love dreaming up a vision and driving their organisations to match their dreams. And, most go for either one or the other, hoping to either cut or grow into the high performance league. In contrast, companies that achieve Radical Performance Improvement see these two processes as symbiotic. The continuous rationalisation process provides the resources – including money and people – needed for growth, and the continuous revitalisation process generates the hope and energy required to sustain the gruelling challenge of relentless productivity improvement. Growth without productivity improvement is like building castles on sand – inevitably they collapse under their own weight. An exclusive focus on productivity improvement alone, with no attention to growth, proves to be corrosive, ultimately sapping all the energy and creativity of the organisation. In other words, while most companies cook only sour or only sweet, sustained superior performance requires a management that has learnt to cook sweet and sour. This article appeared in the Corporate Dossier on 17.7.98

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