The Hindu Business Line : Growing pains

"There are a number of Indian companies that have got employees from an MNC in an effort to professionalise — earlier they would take a decision and make things happen, and now they've become slave to the process. They end up losing the innovativeness, speed and agility of a family-owned company, and they haven't really gained from the process and the professionalism of an MNC."

THOUGH BIG IN SIZE, Marico did not lose sight of the need to innovate in business when it launched Kaya skin clinics.

Can an entrepreneurial company, known for spotting and exploiting disruptive opportunities, lose this critical ability as it grows? Clayton Christensen (The Innovator's Solution) has this observation about serial disruptor Sony - that the same company that created new markets and destroyed the dominance by industry incumbents in radios, televisions and VCRs, saw a decline in its innovative output thereafter. Sony had created twelve disruptive innovations in the three decades before 1980; between 1980 and 1997, it did not, to use Christensen's words, introduce "a single new disruptive growth business." What drove its earlier success and what was responsible for the shift away to safer, sustaining innovations, he wondered, and points to the leadership of the new product process.

Prior to 1980 this was powered and driven by Akio Morita and his trusted band, based on personal observation and intuition. Subsequently, Morita withdrew from this role and the new team of professional MBAs brought in an analytical, data-driven approach that was good at segmenting markets and plugging unmet needs, but was inadequate in finding opportunities for disruption. Christensen uses this point with regard to the weaknesses in using traditional tools to analyse new markets - if the data is available, isn't it already too late to innovate?

This is a familiar theme for anyone who has ever debated the intuitive vs the data-driven views of business success. But this story goes beyond that - it also illustrates the growing pains of companies, and how they can lose the entrepreneurial touch when they grow large and process-driven. As British economist Edith Penrose noted, a small firm is not simply a big firm in miniature. Using her analogy, it is not like a caterpillar growing into a larger caterpillar, but like its metamorphosis into a butterfly - and for this, deep-rooted structural changes are required.

Small companies suffer in the war for talent, being unable to recruit and retain star performers. Yet, what they lack in terms of MBA pedigree is usually more than matched by entrepreneurial freedom and drive. However, as the caterpillar grows, it feels impelled to institute embed processes, bring in a different set of managers, to manage the growth phase effectively. The impact of this on the DNA of the organisation, on the critical genes that were responsible for the growth in the first place, is potentially disastrous.

Truly new ideas which are game-changing in nature need a strong push of passion and conviction to get them through - a willing suspension of disbelief, if you will. In India, entrepreneurial, owner-managed companies are often admired for their uncanny ability to zero in on a winning idea. Track them back and you will rarely find a strong process-driven approach - instead, there is usually one serendipitous moment when the CEO hit upon the idea, and then drove it through the organisation through the force of his will. Many an admired corporate diversification has happened in this way, driven by the CEO's personal passion.

"We need to become another Paras," announced the Head of Marketing in a workshop. Paras, having taken Indian FMCG by surprise with its breathless rate of new product introduction (Afterbath, BoroSoft, D'cold, DermiCool, ItchGuard, Krack, Livon, Moov, Numis, Mrs. Marino, RingGuard, Recova, Stopache, Set Wet, Recova, Stopache, SetWet - most of these in the last few years), has a special respected status in marketers' mindspace as a pioneer of niche products. Yet, if the concepts are evaluated carefully, while disruptive, none of them are new-to-the-world products; few of them are even new-to-the-market. In many cases, the concept existed, was not leveraged sufficiently well by the pioneer, and Paras, with its inimitable combination of high-power advertising and excellent branding, managed to flesh out the concept and explode the category. Whether it is Indian women plagued by cracked heels from wearing slippers on dry, dusty roads (giving rise to Krack), or clothes stained from using Iodex pain-relief balm (leading to Moov), Paras' management clearly has a knack of zeroing in on opportunities in problems.

Few will deny that this approach becomes more and more difficult to maintain as the organisation becomes larger. This is inevitable - you cannot run a Rs 1,000-crore company the same way as you ran a Rs 50-crore one. As the organisation grows, professionals are needed. The best will stay only if they get professional freedom and decision-making authority. Processes are needed to direct their energies, instead of the gut feel of the CEO owner.

What, then? In India, as a small entrepreneurial company grows larger, it tends to attract both MBAs and MNC processes like bees to a honey pot. In fact, it appears to form an almost-necessary step of the evolution into a "national" Indian company, and perhaps, later, part of a global MNC set-up - the entire marketing team is overhauled, and a manager from a process-driven MNC is recruited, to infuse discipline and rigour into the innovation process. As a head of an advertising company observes, "There are a number of Indian companies that have got employees from an MNC in an effort to professionalise - you can see the effect in the speed at which they launch brands - earlier they would take a decision and make things happen, and now they've become slave to the process. They end up losing the innovativeness, speed and agility of a family-owned company, and they haven't really gained from the process and the professionalism of an MNC."

Does growth necessarily have to result in stultifying creativity and innovation? This would depend on whether the CEO keeps a firm grasp on the innovation system. Enabling processes that bring in discipline to exploit current engines of profitability need to be distinguished from the blue-sky thinking that is demanded while incubating "the next big thing."

Who is it that owns innovation and new business development in the organisation? If the CEO takes care to keep his own entrepreneurial DNA alive, and insists on owning and championing future seeds of growth, then these will be incubated and nursed into fruition. Professional as it is, Marico's venture into Kaya was not a product of an iterative, discovery-research-evaluation process. Instead, it was born when a suggestion was made that Marico sell laser hair removal machines. While rejecting entering the business of appliance vending, a lateral idea occurred to Harsh Mariwala's incubation team - how about setting up a services business delivering skin treatments to consumers?

For such an approach to work, there has to be a recognition - and a celebration - of the reasons why the small company was able to innovate and grow, and a clear-headed choice of those processes that are enabling as opposed to bureaucratic. Otherwise, there is a risk of being trapped in the bitter-spot in the growth process, where the company lies suspended, like Trishanku, between the entrepreneurial convictions of a small start-up and the reassuring process-driven approach of a giant conglomerate.

(Radhika Chadha is a consultant in strategy and innovation)

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