Sumantra Ghoshal (26 September 1948 – 3 March 2004) was an Indian scholar and educator who served as Professor of Strategic and International Management at the London Business School, and was the founding Dean of the Indian School of Business in Hyderabad.
This 8-minute clip of Professor Sumantra Ghoshal’s speech at the World Economic Forum is simply wonderful. His speech provides a beautiful illustration of building productive corporate environments and culture. We’ve posted the transcript below the video.
Prof. Sumantra Ghoshal:
Individuals do not change fundamentally in who they are without a very serious personal crisis of some kind. But the conclusion, again, for us perhaps the key conclusion is that is a wrong question to ask. Revitalizing people has a lot less to do with changing people, and has a lot more to do with changing the context that companies, that senior managers, that people in this room, create around their people.
Now, context, some manager called it, “The smell of the place.” It’s a hard thing to describe. Let me try to describe it. The best way I experience it, to my personal experience, if you wish. I teach at the London Business School. I live in London, have done so for the last year and a half. Before that, I lived in Fontainebleau, in France, for about eight years. But one look at me, and then one sound of my accent, and you know I do not come from either of these two wonderful places in the world. I come from India, from the eastern part of India. My hometown is the city of Calcutta. Every year I go to Calcutta in the month of July. That’s the only time when my children have a summer vacation.
Calcutta is a wonderful town in winter, autumn, and spring. But summer, well, the temperature is 102, 103. The humidity is about 99%. I feel very tired most of my vacation, I’m tired, I’m indoors. I used to live in Fontainebleau. And this I generally challenge you, go to the forest of Fontainebleau in spring. Go with the firm desire to have a leisurely walk, and you can’t. The moment you enter the forest there is something about the crispness of the air. There is something about the smell of the trees in spring. You’d want to jump. You’d want to jog. You’d want to catch a branch, run, do something.
That, I believe, is the essence of the problem. Most companies, particularly, large companies have created downtown Calcutta in summer inside themselves. Then they complain. They say, “You are lazy and you don’t take initiative and you don’t take cooperation. You are not changing the company.” This too is not about changing me, I have a lot of energy in spring, in Fontainebleau. I’m a bit tired in summer, in Calcutta and that’s the issue.
To change ultimately beyond all these abstractions of strategy, of organization, of processes. At the end the issue is, how do we change the context? How do we create Fontainebleau forest inside companies? What’s the typical context? Typical maybe too strong a word, but what’s the context that you find in many companies? Not from the esoteric level, where most of the people in this room sit, but from the perspective of this frontline person, the salesman in Leon. Top management creates strategy, Chris talked about it, and that ultimately come down to this frontline person, to me, the salesman in Leon.
Constrained, it tells me by customer what I can do. It’s a box of constrained. That smell, I’m trying to relate to that metaphor. We all see it. We enter a place, in the first five minutes you get a smell. You get it in the hum of people. You get it in the quality, the color. The smell is constrained.
Compliance, companies create this elaborate infrastructure of systems, planning systems, budgeting systems, financial systems. All of it boils down, by the time it travels down to me, the smell it creates for me, is compliance. I got to comply.
Control, my relationship, not just with my boss, but with the entire management infrastructure is one of control. It exists to control me.
Finally, contract, we repeated use the word. Your job is a personal contract. Relationship with the company is a contract. Budget is a personal contract. Price is a contract. Constraint, compliance, control, contract, that’s the smell we create. That’s what I live in.
Then when we say, “You’ve got to proactively create change. You have to take initiative. You have to cooperate.” Where are we going to get those behaviors? What we found in our research, on the other hand, is a few companies that have created an environment that we describe as the dimensions of stretch, discipline, trust and support. Let me take a minute, or two, to explain them.
Where top management does not create the strategy that boils down, that constrains, but rather creates an exciting set of values, an aggressive ambition, all of which create a smell of stretch. Not stretch, we want to be a $100 billion company or anything, but stretch in the sense, every individual, all the time, is trying to do more rather than less. Not compliance or all these systems that create compliance, not compliance, but discipline. Embedding norms of self-discipline. You can see that in companies. You can see where day-to-day behavior is shaped by this embedded norms of self-discipline.
Self-discipline is, yes, it’s meeting the budget, but it’s much more. It is, if a meeting starts at nine, everybody’s there at nine. It is, if people collectively agree to a decision in a management committee, even if individually you disagree, you do not start challenging that decision or unraveling it immediately outside in the corridor. Until you see this norm, agree or disagree, but commit. Yes, people debate, people argue, but in the end a decision is taken. Then agree or disagree, but commit, self-discipline.
Also, not control, but support. The whole role of senior management changes where they’re not seen as the exercisers of control, but as those who exist with one purpose only. Which is to help me win, by access to resources, by coaching, by guidance.
Finally, not contract, but trust. Trust more than this very contractual sense in which we use the word trust. Trust in the sense that says, “If you carry that card, I maybe in Australia and you would be in United States. I may have never met you, but the fact that you carry the card is good enough for me. To let go of the safety of business as usual. And fly, knowing that you would be the safe pair of hands at the other end.”
Stretch, discipline, support, trust. I’ll invite you, don’t take those words, don’t intellectualize those words, but try to sense the smell that can be created if those are the norms of behavior. Our research says two things. One, it is possible to create that smell in companies. There are companies, and of the companies that were part of our sample, 3-M is one example, but a management can create the smell and protect it over long periods of time. That’s assertion one, it is possible to do it and protect it.
Assertion two, it is also possible for a determined management that has inherited more of the downtown Calcutta in summer, to convert it to the Fontainebleau forest, to that new context. Then while we do not know Alcoa, or Fiat, very well from the discussions we are having this morning, some of that has been done in their companies. But we have seen others where it has been possible. The statement that we would make is, “Ultimately, what’s the test of quality of management of a company?” Performance, we know is a very noisy measure. This to our mind is a real test of quality of management, the context that managers create that shapes the behaviors of people creating the stretch, discipline, trust and support.