The Hindu Business Line : Accordion movements

MANAGEMENT practices move up and down like hemlines, following some curious internal logic. Trends in organisational size and structure swing out into greater diversity and complexity and are pulled back in, like accordion movements. Consider these six examples: whether to decentralise or centralise; merge or de-merge companies; go in for line extensions or re-focus on a few categories and brands; business expansion or stabilisation; conglomerate diversification or sticking to one's knitting; expanding staff strength or cost-reduction through layoffs.

Some changes in managerial style are linked to fashions in management thought, some to technological and business cycles — especially the digital and the mobile revolutions, and yet others to the world gravitating towards freer markets.

Still, many changes seem to be just pendulum swings, prompted by the merely having gone far enough in the other direction. This is because the logic in any direction, such as consolidating several companies into one, becomes self-defeating after a point.

Consolidation happens through selling off marginal entities or buying up competitors and related businesses. Companies grow to several thousands of employees and myriad locations, and unwieldy size becomes a curse. Too large a size is obviously bad, because the diseconomies become irritants.

Daily management tasks of keeping track of things from a single perspective, turn out to be a major challenge. Bureaucracy and hierarchy slow down the pace, there is more of an internal focus, and an arrogant stance towards dealers, suppliers and indeed customers, become embarrassing portents of a decline imperceptibly underway.

A nimble-footed competitor strikes, first in one corner of the market and then in another. Before too long the plodding mammoth finds itself cornered, unable to move. This typically triggers the next round of revolutionary change, including restructuring of the Board and ownership, or a flurry of de-centralisation in order to win back some of the market strength. Innovation and creativity, known casualties of size, are rediscovered. Obvious advantages seen earlier such as lower Head Office costs are nullified by other unanticipated costs, mainly because of taking one's eyes off the ball — and frittering away attention on urgent organisational problems rather than market opportunities. Repeated attempts at re-structuring and divisonalisation, and creating internal order become continuous battles occupying valuable management time.

Similar scenarios could apply to all six examples. The fundamental truth is that strengths carry within themselves the seeds of weaknesses, which a schoolboy would, in theory, appreciate. While extending an argument beyond a point is clearly dangerous, the snag is that different people draw the line at different places; and what is too much, is ever a matter of disagreement. So every change in the organisational leadership sees a new Gospel, a fresh truism being dusted and brought out of the closet, and championed with as much vigour as was seen for its polar opposite, under the previous Chairman.

To some, this might appear facile theorising. They may point to some trends such as mergers and de-mergers which appear to carry permanent advantages, unlocking the value for the investor. Yet, while stock markets do under-value agglomerations of unrelated businesses, stock prices are also clearly very susceptible to short-term changes.

In the long or medium term, the cracks in the edifice begin to show. Investor profits are matched by later disasters in the consumer-market. If any business has to balance the priorities of several interested parties, emphasising one over another is bound to be troublesome.

Reliance, Unilever, ICI, ICICI and many public sector giants are prominent Indian examples of highly respected, multi-business corporations trying to clean up and re-fashion their portfolios. It is no accident that none has gone entirely smoothly or without long-run side effects, with some strenuous re-fixing of what was fixed earlier. The trap one must avoid is thinking that one has somehow broken this inexorable cycle.

Feedback can be sent to srchander23@netscape.net

S. Ramachander

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