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Sriram Srinivasan

Prof Vijay Govindarajan

CHENNAI, Feb. 17

IN the early 1990s, Encyclopaedia Britannica had to encounter the most unlikely rival — Microsoft. At that time, the software giant made a foray into the encyclopaedia market with CD ROMs, which not only sold cheaper than the printed ones but also broke the elitist tag associated with the product.

Needless to say, Encyclopaedia Britannica was caught unawares — a result of not being able to analyse future competition. Or, as Prof Vijay Govindarajan, a professor of international business in a US college, puts it: "They spent an awful lot of time in `Box 1'." Confused? He explains: Everything an organisation does can be explained in terms of three boxes — managing the present (Box 1), selectively forgetting the past (Box 2), and creating the future (Box 3) — and Encyclopaedia Britannica did not do much with regard to the other two boxes.

He says, "Encyclopaedia Britannica couldn't take leadership position in non-linear change," which also implies that it was ill-equipped to handle sudden changes.

The two factors he is talking about are "key to completely rethink the way we formulate and execute strategies".

Prof Govindarajan, who is the Earl C. Daum 1924 Professor of International Business, and Director, William F. Achtmeyer Center for Global Leadership, Tuck School of Business Administration, Dartmouth College, shared his ideas on `Transforming organisations: Managing discontinuous change' with members of the CII during his visit to Chennai.

According to him, the reason for the predominance of `Box 1' thinking is this: In most companies, formulation of strategy is concentrated at the top, and it "works well when they are managing the present". But centralisation comes a cropper when it comes to taking a proactive stance, as the people who are more aware of ground-realities and changes are those in the frontline — those who are left out of strategy-formulation. Precisely this happened in Encyclopaedia Britannica. The top brass was too focused on its core competencies — content, packaging, and marketing and distribution — that they did not have a clue of what was in store for them, he says.

Decentralisation of strategy-formulation is necessary but not enough — it should happen in resource-allocation too.

However, Prof Govindarajan does not find many companies that have transformed themselves thus. Among the few is British Petroleum. "It's amazing how decentralised the organisation is, considering it has 70,000 employees." Only about 100 man the head-office.

The genesis of transformation lies in the need to create a "start-up mindset in a big company". This, he says, will make the company more nimble, fast and organic, which when synergised with its "resources, brand name, customer-base, legitimacy and capabilities" would create an unbeatable combination. The CEO's job becomes more complex and he has to "create an organisational DNA, where the various units can create strategies and hold it together". Also, the CEO has to ensure that no confusion arises.

There are some Indian companies too in Prof Govindarajan's list. Reliance, Infosys and Wipro, he says, personify "Box 2, Box 3 thinking". But are they global? Far from it, he says. For, being global means applying global solutions to similar markets and local ones to fragmented markets, and also implies employing the global-best resources. For most companies here, the employee-base is mainly Indian, he adds.

In the 2001 book The Quest for Global Dominance, written along with Prof Anil K. Gupta, who is Professor of Strategy and International Business at the Smith School of Business at the University of Maryland, Prof Govindarajan had said that a worldwide presence would become a requirement, not a choice, "with the decline of isolated Government-owned economies, combined with the digital revolution". This idea has only grown stronger in him despite the 9/11 attacks and an imminent war on Iraq. The terrorist attacks have merely put globalisation on a different mode rather than thwarting it, he says.

For example, while Gateway Computer stalled global expansion, Dell pursued it aggressively. Similarly, while Merrill Lynch pulled back investments in Asia, Citibank poured in more money.

The difference in the approaches of similar companies is due to the varying levels of global presence that they had. Dell had a substantial presence, which was not the case with Gateway, Prof Govindarajan says. What worsened matters further was the recession, which created a "resource crunch".

Though betting on globalisation as an official policy of the government, he is cautious enough to point out that the state has to take care of short-term dislocations, so that in the long-term, "India can see better standards of living".

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