Anuradha Sengupta: In the past decade or so, Indian companies have perhaps been in the process of shifting from the old process of old mental models to new mental models. We are going to discuss how they are coping, how they are faring with this process and to do that we have with us KV Kamath, MD & CEO of ICICI Bank and Jerry Wind, the co-author of The power of impossible thinking. Jerry, India is at a very interesting phase in its lifespan, isn't it?
Jerry Wind: Absolutely.
Anuradha Sengupta: When you are dealing at this scale, the power of impossible thinking is ultimately about scale, about transforming society. When you are dealing with it at this scale, what are the challenges when it comes to mental models and using them?
Jerry Wind: They are huge, the society scale especially the society that is as large and diverse as India. When you are talking about a billion - when you are talking about a huge gap between the have and the have-nots, when you look at the immense discrepancy between the slums on one hand and the enormous riches on the other and when you think that at the same time what you have is one of the largest segment in the world of well-educated, technology-savvy people - Silicon Valley alone has over 3,000 Indian entrepreneur - it is hard to find today a US company that in their IT department will not have people from India. In all the PhD programmes you have people from India. You have enormous resources yet you have a huge scale…
Anuradha Sengupta: Who leads the task of changing the mental model towards success when we are talking about a country? Are we going to leave it in the hands of the government? Who takes the role?
Jerry Wind: I would hope that you would not leave it to government if everyone wants to see change. I think we need leadership at all levels. We need leadership not only - the central government will need leadership, every village, every town, we have to rethink a town, have to rethink a village of how to create them. Businesses have a huge role in here. There is nothing like their entrepreneurial spirit as we heard from KV ().
Anuradha Sengupta: KV, you have seen up close this almost radical transformation that is taking place in the corporate landscape. What is it that? Do you see Indian companies adjusting from the old way of doing things, from old mindsets to new mindsets comfortably or are they like adolescents?
K V Kamath: No, I think they are into it in a full blown way today and there is no option. They had to be, but let me just comment on what Jerry just now said and it is very important that we understand and appreciate what he said. Governments creates space and the environment. It is for the mass including the corporate and the individuals to really fill this space and make the country what they want to. So I think this role has to be understood and I think this is where we have seen success in countries where this model has been adopted.
Coming to industry - India industry came through structurally difficult times in the last six - seven years and I guess that everyone of them, everyone of the surviving industry members understood that those who embraced change, those who went beyond the one-way street would succeed and they changed. For example six years back, five years back, every industrialist you meet in India would say "The China factor is going to kill us." If you ask the same industrialist today, "What about the Chinese factor"? "Not a problem, we can compete."
The last one where I find this new thought coming very clearly is the textile industry. Just 18 months back, two years back they were all saying, "This industry is wiped out", and indeed due to structural change the industry was in deep trouble. Recently they are saying that we are a globally fit fighting machine… and they are able to compete. So clearly industry has been able to re-invent itself and understood that change is paramount and this change started from their shop floor.
The shop floor has been cleaned, processes have been improved, quality has been improved, they have delivered themselves, they have cleaned up their financial structures and I am sure their organisational structure and their mental makeup also have to change before they did this change so clearly change is a constant process.
Anuradha Sengupta: This keeping the old and the new and finding a middle path between the two, do you think culturally we are better equipped to do something like this because you have a tendency to be exposed to so many different stimuli and then pick and choose the best?
K V Kamath: I would say yes and give my own reasoning for this because I do not see why we ought to be different from others in a cultural context. I would say that culture that you are talking of here probably has been made up because we cannot afford to be different. We cannot afford to be different because we do not have the resources to part with something old. So we were natural to adopt to this hybrid attitude which incidentally is a two-way street that Jerry has been talking about. Because everything that is done in India is done with scarce capital. When you do things with scarce capital, you try to do it efficiently - maximize the - Probably that has become the cultural paradigm.
Anuradha Sengupta: KV, in your experience, would you be able to give a few examples of India companies that have changed mental models and because of that change are in a completely different league and in a completely different growth curve today?
K V Kamath: I would say, if you look at the manufacturing industry, in the sense of the industry these companies always had the edge because they hit the floor running as it were a few years back and have kept the momentum. The real challenge has been the manufacturing sector; and in the manufacturing sector I would pick the auto industry and the auto ancillary industry… the best examples of industries which completely transformed themselves in the last few years.
Anuradha Sengupta: Because of the way they have changed their mindset?
K V Kamath: Because the mindset change, because of application of mind and re-inventing themselves. Now, I've had companies three years back, four years back and if you ask them "what is your competitive disadvantage?" then 30-40 per cent of these companies have overcome their disadvantages and today are overly acknowledged as people who can provide quality products at competitive prices. I guess that stands down. Next one is the textile industry. This is an industry that rose from the ashes as it were. I think these two industries really are striking examples of re-invention.
Anuradha Sengupta: And do you think that these companies are poised to make the next leap which is from success here to global success?
K V Kamath: That is another important mindset that we are now seeing. They are all thinking global because the confidence they have now with the success they have seen in India lets them to think on a global platform. Indeed, several of these companies you see becoming large in the global context in their lines of business. You see companies wanting to go global and you see companies actually that have acquired companies globally and stepping out and proving that they can operate on a wider stage.
Anuradha Sengupta: Jerry, to be a successful player in the global level, what is it that the mindset requires, what are the few set of conditions you need, what kind of a global mental model would an Indian company need?
Jerry Wind: Well, lets step back for a second and realise the fact that the globe in a global company is a very heterogeneous place and the challenge for most of the companies historically has been that they basically focus on 14 per cent of the world whose GDP per capita is over $10,000 per year. They ignore the other 86 per cent of the world - the India, the China and other parts of the world.
The advantage that you have for the Indian companies who are thinking global - and it is a thought process of understanding global - that they are forced to innovate to come up with better solutions for this 86 per cent of the world. In the auto industry, Tata came up with a car which is for $2,000. There is no American company or Japanese company who can think what does it take to develop a $2,000-car. It is a dramatically different mindset. They are geared better than Toyota or any other American company or any other company to try and capture this 86 per cent of the world because they have done it here.
And I think one must understand that going global does not only mean selling success stories only to the US or to Europe. It means capturing and understanding the global market and outsourcing. When we talk about the textile - I am not familiar with the Indian textile industry - but in textiles in the US today, everything is subject to the integrated supply chain and how you create the best integrated global supply chain - because I am sure that the dresses that you wear are made in multiple countries, not only in a single country - and how they orchestrated this as part of trading companies or other approaches… they just do it. So to be successful you have to realise, one, that you have to think outside the boundaries of your country and, two, the solution is "think global but get local to understand the heterogeneity in each country ".
Anuradha Sengupta: You mentioned outsourcing and there was this backlash which reached a certain pitch during the last presidential elections. How do you think American and European companies need to convey that there is a mental model there that needs to be changed?
Jerry Wind: There is no choice in the sense they have to communicate more effectively. The better companies, the companies that are succeeding realised that outsourcing and off shoring is part of the new reality. You are basically changing the traditional theory of the firm and looked like the firm is the centre of the universe to realise that you are dealing with a network of companies and you don't have to everything yourself. You can only do the marketing and let someone else do the R&D, someone else basically does some of the processing. So you have to rethink basically. The world is the arena of your operation and come up with the best possible configuration. The failure is the political failure, failure to communicate this in the political area, failure to communicate this to people how to deal effectively with the issue of labour unions who are concerned about this but it is more a failure of communication than a failure of reality. The reality is we have it and it will stay here forever.
Anuradha Sengupta: In a practical level, if this mental model would change it would help us directly. Now how do we influence other people's mental models? Can it be done and how can it be done?
K V Kamath: Yes, it is happening and let me put it in context. Something that Jerry said - local example, how do you take something that you have looked at locally and take it global or something global retrofitted into India. This is where not only from your own industry, you can look at models from different industries and then try to see if there is a relevant fit. One good example is the way and the challenge of doing business in India. If you can master it that itself gives you a global - and I am saying this with all seriousness.
Take banking. In banking the average size of a customer deposit in India is, in our bank, $1,000. In several other banks, it is $200. So your top-line is going to be driven by a deposit of $1,000 or $200 whereas in the west it is $10,000 or ten times the size. Now that $10,000 deposit drives the top-line of that bank. Let's say all three banks have the same number of customers. And all three banks introduce technology. Now if we run technology in India at the cost and at the same scale as the West runs it at, you cannot because the top line is much thinner.
Its one-tenth in my case and probably one-thirtieth in somebody else's case. So unless we learn how to use technology at the fraction of the cost of what the West is doing, we cannot use technology in India. You have to innovate to run technology. And if you can innovate and run technology at a fraction of the cost - there solutions. They will not come from the banking industry because there is no model. Where do you look for the models?
The expense is X and you are not going to make it work. So how do you make it work? You then innovate to find a solution that is appropriate to what you are doing here. If you have got it right, then it is a scalable model that you can take across the globe and build it into a winning solution. I think these are the opportunities that come up working in a domestic market like India - I used banking because that is an industry we know. I am sure that the same are in every industry that we look at and I am sure that these sort of solutions will come from some of the developing countries not necessarily in India. You could see China doing this, South East Asia doing this and in the course of time other countries also coming up with such solutions. Lets punch our own models and that becomes a globally scalable model. Because you have run that cost paradigm in India, can you not take that cost paradigm and scale it up to a global model?
Anuradha Sengupta: Jerry, you have an interesting take on that, don't you?
Yoram Wind: Of course I completely agree and there is another example I am taking from a recent book by C K Prahalad, the bottom of the pyramid where he brings that example of the artificial limb. In India there are over five million people who need artificial limb. The cost of artificial limb in the US is about $7,000 or $8,000 and obviously people here cannot afford it and furthermore there is much greater demand of functionality because here the people are walking or squatting all day and require much more functionality than in the US.
Also you don't have that many orthopaedic surgeons and you don't have too many hospitals so you needed to rethink the whole artificial limb. They did it with much greater functionality than in the US. It can be installed by a semi-skilled professional not necessarily an orthopaedic surgeon and at a much shorter period of time and at less than $100. There is no American company that is used to the approach that led to the $8,000 artificial limb. It cannot compete in this market. Now of course the challenge is for the India company that is developing it , how do they capture other markets? I fully agree with the fact that what we need we cannot take from a multinational perspective the models and the products that we were successful in Europe and the US and Japan and just bring them to the rest of the world. And, that is a point clearly made in the book by Vijay Mahajan and Kamini Banga on the 86 per cent solution. Primarily you have to think differently, think creatively. There are huge opportunities for India.
Anuradha Sengupta: KV, what is the roles and the pressure that comes on to a leader when you are trying to harness the power of mental models and therefore transform whatever is in front of you?
K V Kamath: Tremendous. The pressures are tremendous. The pressures come from several quarters. One is when you want to effect change through whatever process and from wherever the stimuli comes from, ultimately it is processed in the mind but the stimuli could be from across the globe, across industries, from patterns of behaviour, basic observation. You need to get your employees aligned to these changes and that is where the ability to change our thinking, ability to carry people along becomes important and it starts with your A-team.
You get your A-Team aligned and then they need to align the teams downwards. This is step no. 1. A lot of times people do this but do not align the organisational structure to be fully in sync to the change needed and then you have disaster and the people will tell you, look we told you it will not work. It did not work if the idea was bad or it was not implemented badly and the fundamental principle that we have found in our experience and it is universally true for any industry is align your people and get your structure right.
So, I articulate in the organisation concept that the organisation structure cannot be cast in stone. It is like a living organism. It has to change shape and character as the organisation changes shape and character. I find that if a company adopts this broad philosophy then it is easier to change. It is still not an answer to change, you still have to work hard. It is the biggest challenge a leader faces.
Anuradha Sengupta: Pressures on leaders to implement new mental models?
Yoram Wind: I would fully agree with the answer and I would like to add three points to KV's answer. One is the need to look at this as a system. We cannot fix part of the problem. We need to be ready to look at the entire system. How does it affect the customer, the supplier, others in vogue, the partners you have. You have to look and basically redesign the whole system. Two, and this is really in elaboration in terms of what KV said, which was organisational structure, I would like to broaden it and look at it as an organisational architecture which will include within the organisation not only the organisational structure but also the value, the corporate culture, the processes, the competencies required, the technology, their performance measures, their incentives.
Very important, their incentives. Unless you align all of these and realise that these should reflect basically the needs and desires of the various stakeholders that you have and you align them and realise that in the changing environment you will not be able to succeed and finally I think KV, is a great example of this is the trait for courage. I don't think a leader can succeed in leading transformation unless they have the courage needed to do it. There is a great quote from Howard Shultz, founder of Starbucks who said that the secret of success is successful transformation and he was in easier times than KV because he started something from scratch and he did not have to change.
Anuradha Sengupta: No legacy issues.
Yoram Wind: Right. It is much tougher to take all the organisation and change it than starting something from scratch and even he when he started something from scratch, he said, seeing what other people don't see and pursuing that vision no matter who tells you not to because you will be surrounded by people who will give you this great advice - don't do it. It is too risky, why do it and that is where you need the courage of a leader who will say, yes we are going to do it and that is the way we are going to do it.
Anuradha Sengupta: Yes, but KV this is courage - sometimes courage is when you have to do it, isn't it…
K V Kamath: That is when you are pushed to the brink. I would believe that when you are pushed to the brink everyone takes a decision but lot of companies don't realise that they are going to the brink and it is in that phase that the bias for action is not looked at positively. You are comfortable with the status quo and actually the rot starts very much earlier. When you are in a very strong position in your business and you are in your comfort zone you start saying no to the ideas which would have started the two way process and slowly you slip and then comes the time when you need to take the decision and you fail to take the decision, you suddenly realise that you have gone over the brink and I think there are any number of cases in India and abroad when companies have basically suddenly collapsed and it is not sudden and it look to us as sudden.
Anuradha Sengupta: You did not see the warning signal like Jerry keeps saying. There is one very interesting thing that you said - to know mental model needs to be discarded. You can archive some, you can have a portfolio of some. Do you see the management of this task being easy, this task of having several ones and bringing out ones that are suitable for the job at this point? It's tough isn't it? It is easy to say in a book!
Yoram Wind: It is tough but the issue is again the mental model that you have. It is about mental models. Is the mental model that I have - is it the single right model? Or the right approach is what is the portfolio of models? Look at investments. Investments are never going to say, give me the best stock that is going to make it and put all my resources into this one single company. You know the key to investment is portfolio.
Anuradha Sengupta: But KV does it not happen that when you put all your weight and passion behind one idea, one mindset that you might be seen as wishy washy or being seen as someone who is not sure of what he wants as a leader?
K V Kamath: No I guess I would entirely agree with what Jerry said. You have that portfolio. Actually when you apply to a business context, once you have the portfolio, these are the choices that you have. You select one if one is to be implemented and go ahead with it and that does not mean that others are to be discarded and you may revisit the model and then bring these in as you need it. From my own example I can give - put in context something he said about Wingspan winding. Honestly there was a time when we were just rolling out our internet bank and the sole fear there was that our business would go one way and that's the net way and everything would be driven by companies who had access to the customers through the net.
We also thought, even for a country like India that this could be so and there was a decision making time whereby you said - would you bet on that or would you bet on the hybrid model? We were inclined to bet on the former actually. We were very lean then and we had less than 100 branches and it would have been very easy to say, so we went the other way but now what could have been done was going along with the hybrid model we could have said, technology played second fiddle to it. It didn't. We brought back the thought that the internet revolution or the opportunity that the internet revolution provided to develop new products that became category leaders. For example following this a year later was the development of the web trading model that I talked about which today has a significant market share, is the Indian leader and has changed the way broking is done and the customer interacts with you in terms of his trading business.
Anuradha Sengupta: Jerry, you want to leave us with one thought on the power of impossible thinking?
Yoram Wind: Well, the one thought would be that you have to realise the importance of mental models and try to understand what your model is and it is absolutely critical and the critical thing is - is your mental model correct? Is it correct? Does it need the changes in the environment? This goes back to the portfolio discussion - the portfolio discussion says - let me examine what the portfolio says and which of them fits the best and be flexible to change it over time. So in a sense it is difficult to say a single thought but the single thought is basically that once you recognise the importance of mental models and you know what yours is, constantly, constantly challenge it to see to what extent it meets the changing environment and then act upon it.
Anuradha Sengupta: Jerry on that thought, thank you very much for being with us on Lessons in Excellence, thank you KV Kamath and thank you very much for watching us.