Redefining entrepreneurship

Mr. Kumar Mangalam Birla, Chairman, Aditya Birla Group
The Smart Manager
Nov-Dec 09, Vol. 8, Issue 6

Entrepreneurship remains the outcome of a highly energised process of human ingenuity with its indomitable spirit to c;reate. In this exclusive article for The Smart Manager, Mr. Kumar Mangalam Birla relates entrepreneurship to the current times and looks at it in the contemporary context.

The notion of entrepreneurship has always been rich and complex, and it has always had a tinge of romanticism about it. It defies box-tight definitions. It is about turning aspirations into reality. It is about dreaming big. It is about the courage of conviction. It is about what Charles Handy calls creating "new alchemists from ordinary people."

First, I will talk about the images the mind conjures up about entrepreneurs, and how the idea of entrepreneurship has evolved over time. Next, I will dwell briefly on the forces spawning the growth of entrepreneurship. And finally, I will talk about some of the things large organisations can do to make themselves more entrepreneurial.

For all too long, India's entrepreneurs were shackled by the 'license and control' raj.

Thankfully, that period of entrepreneurial drought ended in 1991, when India kick-started economic reforms. Since then, the rebirth of the entrepreneur has been one of the defining features of India's economic scene. Today in India, the stature and standing of the entrepreneur has grown immensely.

No longer does the IAS tag, alone, command the same 'wow' factor among prospective in-laws. No longer is social acceptability bestowed only on the so-called 'well-settled' lawyer, doctor, or engineer, or the bright young manager intoxicated by the pay and perks of leading companies.

Time was when a brash young person setting out on his or her own was considered not 'quite with it'. One can well imagine the behind-the scenes talk in hushed tones...perhaps the parent's were too lax...maybe the boy strayed into the wrong company. Ironically, in many cases, the young man just stumbled into entrepreneurship, as he was not fit for anything else!

Gone are those days. Today, the entrepreneur is a hero in his or her own right — just as much as the cricket player or the film star.

We can TRULY call our times the age of the INNOVATIVE and idea-oriented ENTREPRENEUR, as also the entrepreneur with a CONSCIENCE.

Entrepreneurs: from greed to conscience
Through time, and the world over, entrepreneurs have always had exciting, often colourful images spun around them. For most of us, the very idea of throwing it all up and setting out on one's own is enough to touch a raw nerve. Consider some of the images over time and space. The rich merchants and royalty of Europe who bankrolled voyages over the oceans: one led, quite by accident, to the discovery of the US; others led to the development of the spice trade; in some of those voyages lay the origins of the East India Company or the establishment of the first colonial outposts.

Moving forward in time, there was the Gold Rush, as new settlers staked it all to pan for gold. At the turn of the 1900s, we witnessed the opening of new frontiers — among them the discovery of oil, the development of the combustion engine and the laying of railroads. All these led to the age of the 'robber barons' — a reference to the large financiers and the monopolies they commanded. Back then, entrepreneurs, though certainly powerful, were not exactly the role models they are today. They did regain a lot of their respectability though after their wealth was channeled into laying the foundations that led to the creation of social wealth. What comes to mind are examples like the Rockefeller Foundation, Ford Foundation and the Carnegie Endowment.

In the decades that followed, with the US depression in the 1930s, and in the post-war world, the image of entrepreneurs has become much more benign. Among other acts, the early entrepreneurs broke rules, busted unions and were quite ruthless about throwing competitors overboard. The entrepreneurs since then — Edison, and, moving on, to the founders of enterprises such as HP, Intel, Microsoft, and Google — are a quantum improvement in terms of social conscience and governance practices.

The intellectual and knowledge content of entrepreneurship is also much higher today. Sheer financial power or influence power will get only so far. Today, it is ideas and innovations that rule. We can truly call our times the age of the innovative and idea-oriented entrepreneur, as also the entrepreneur with a heart and a conscience.

Also, the concept of entrepreneurship is now almost universal — barring a few holdouts such as Cuba and North Korea. In China, a thousand flowers have started to bloom in the aftermath of Mao's regime. Japan, in an economic rut for over a decade now, is looking to foment and ferment entrepreneurial activity to pull it out of its long slump. The oriental societies — where the nail that stuck out invariably got hammered down — are changing to make space for the eccentrics of the business world.

Redefining entrepreneurship for our age
Now, let's relate entrepreneurship to our times and look at it in the contemporary context.

Today, ENTREPRENEURSHIP is about LEVERAGING OPPORTUNITIES within a much larger ECOSYSTEM

Of course, the basics haven't changed: entrepreneurship remains the outcome of a highly energised process of human ingenuity with its indomitable spirit to c;reate. The process is fraught with risks and uncertainties. Extreme bursts of entrepreneurial activity are often accompanied by widespread destruction. The status quo collapses; vested interests run for cover; and entire industries are brought to the brink. On the flip side, customers gain, market size increases, and society is almost always better off. The vivid phrase "creative destruction", coined by the economist Joseph Schumpeter, says it all.

Consider some of the great breakthroughs of entrepreneurship, and the changes they ushered in: the air plane and what it did to passenger ships; the humble word processor and the consequent demise of the typewriter; mobile telephony and the speed with which it broke the monopolies of the land line operators; how the credit card gained market from travelers checks; how Amazon transformed book retailing, making every book available to every person in the world; and who today can make it through the day without doing a Google search? Can even the best library in the world provide us with such a handy and superb reference service? These best-of-breed marvels of entrepreneurship resulted from a certain process.

However, with the changing world, the currents and processes which c;reated entrepreneurs have also evolved. Let's look at some of the ways in which entrepreneurship has changed over the years.

Earlier, entrepreneurship was largely about mobilising resources that were available close at hand. Today, entrepreneurship is about leveraging opportunities within a much larger ecosystem. The idea or the intellectual property need not be your own; one can tap into the vast pool of patents and gain access to what others have discovered by paying for it or by collaborating.

Earlier, the person willing to finance the entrepreneur was the family or the local moneylender. Later, it was the neighbourhood bank. Then it was a state or government financing agency. Today, the person with the knowledge, the idea and the drive can tap into a global pool of finance. Of course, in today's world where euphemism is often rife, the moneylender is no longer referred to by that 'derogatory' term. Rather, it's more likely the moneylender comes in the garb of an 'angel investor'. The pound of flesh extracted by both would, however, be equally chunky!

A second shift — a few decades ago, entrepreneurship was talked about largely in the context of small business start-ups. Take for instance the mythical inventor putting together his invention in the garage — what would later become Hewlett Packard. Today, the concept of entrepreneurship is not limited to small-scale ventures. Rather, it is more an attitude and a mindset; something vital even for the largest of organisations! Indeed, rigid organisations, wanting in entrepreneurial spirit, put their very survival at risk.

A third change — earlier entrepreneurs worked predominantly at the extremities of the value chain — in manufacturing or in retailing. Now there is much more entrepreneurial activity at different points along the value chain such as R&;D, product design, customisation, distribution, service, and the financing of customers.

Fourth — entrepreneurship was once an idea confined largely to business. Today, entrepreneurs are doing their thing in areas other than business — in government, NGOs and education, to name a few. In this context, the Mid-Day Meal Scheme and the National Rural Employment Guarantee Scheme rank with the best of entrepreneurial ideas. They are truly game-changers. Both are bold, and both attack the problem of poverty in a very direct way. In terms of targeting a market need, they are spot on. And their multiplier impact spills far and wide.

These schemes also represent a break from conventional economic theories that are biased towards discouraging government expenditure that does not result in creating hard assets. Take another example, that of Grameen Bank in Bangladesh, which pioneered the concept of micro-finance. All these entrepreneurial ideas are unique in the sense that they help nurture human capital itself, which is the most beneficial form of asset creation.

OPPORTUNITIES for new BUSINESSES today CORRELATE highly with the rate of CHANGE

Fifth — and I repeat this point because it matters a lot today — entrepreneurship had once necessitated the breaking of rules, beating the system or taking short cuts.

Factors driving entrepreneurial activity

Let me recount some of the factors that I believe facilitated the entrepreneurial vigour of recent decades.f entrepreneurial activity — getting licenses, permits, keeping competitors away — are much less relevant. Entrepreneurs can now afford to stick to their value system.

A few trusted persons went and virtually settled in Thailand to look around for opportunities in the region. Compared to now, they had little prior information. Travel was expensive and nowhere as convenient as today. The telex was the fastest mode of communicating.

They had to start from ground zero to study the local environment and market and build the contacts. Our people there were virtually emissaries, business ambassadors, like early settlers in a new land.

Second, opportunities for new businesses today correlate highly with the rate of change. The more the churn, the greater is the scope for an entrepreneur to capitalise on it. The acceleration of change is driven by new technologies, shorter product life cycles, greater customer awareness, changing customer needs — all of which can be converted into markets and profits by a person sharp enough to sense the currents and willing to take the risks.

A third driver of entrepreneurial activity is demographics. Younger people have altogether different aspirations. And they have no hesitation about pursuing unconventional career paths and lifestyles. This opens up whole new possibilities. The motorcycle industry exemplifies the excitement the youth are seeking. The drive for purposive leisure has led to entirely new businesses; for instance, adventure travel and fitness centers. The new Internet has become the backbone of companies such as Amazon and e-Bay. Online job search sites have invaded what was once the domain of the conventional employment agency.

Take Just Dial. How often do we now refer to the bulky multi-volume telephone directory? Take another old staple business — the travel agency. There are so many online air ticketing and hotel booking sites that one has to look hard to justify the value added by a travel agency. Even the most basic of social needs — the need to build relationships — has been converted into ventures such as those exemplified by Facebook.

All these businesses barely existed as recently as five years ago.

I think promoting entrepreneurial ambition calls for a supportive eco-system. Entrepreneurship thrives when the rewards for entrepreneurial activity are high. Moderate taxation, particularly of capital gains, certainly helps. In addition, there has to be a sophisticated financial infrastructure, including availability of venture capital and ready access to the equity capital markets.

A robust R&;D infrastructure is also an immense help. In the US, for instance, a large number of entrepreneurial nodes have developed around universities such as Stanford, MIT, and the Research Triangle in North Carolina. India has made a start in this area. IIT Bombay, for instance, is disbursing seed finance — provided by businessmen such as Kanwal Rekhi, Vinod Khosla and Shailesh Mehta, among others — to students with bright ideas.

The ORGANISATION has to be designed so that it OVERCOMES the INERTIAL aversion to risk that blocks true ENTREPRENEURSHIP.

How large organisations can stoke the spirit of entrepreneurship
Let me briefly dwell on the contradictions inherent in the way entrepreneurs function and thrive and the way large organisations function. Entrepreneurship is all about creativity, agility, speed of response, passion, flexibility, the willingness to take risks, and, above all, a sense of deep personal involvement and ownership.

Organisations, on the other hand, are constrained in many ways — by structure, hierarchy, collective decision-making, well-defined and institutionalised systems and processes. These are the contradictions one has to resolve. I believe one can and must work out the right balance, one that blends the free form of entrepreneurship with the positive attributes of the organisational form. We have done quite a bit of thinking along these lines and I would like to put forward a few thoughts about how organisations can be infused with the entrepreneurial mindset.

A good starting point is the recruitment process. Most corporate recruiting is skewed towards hiring very normal people, those who can fit in. They have their well-defined educational backgrounds. Most hires are from rather comfortable, middle to upper class backgrounds. Their career paths to date would have been largely predictable. They may have studied hard and played hard, they may be bright.

But what's mostly missing are the factors of hardship and adversity. They have not experienced the margins of existence. They have not faced any fear or uncertainty. The result is a certain predictability and an unwillingness to rock the boat, stick out, or do wild things. These are not mavericks. So, our recruitment process needs to also include those who are 'oddballs', if I may use that word.

Our talent search should identify those who have braved adversities; those who show guts, passion and perseverance, and who would like to think of themselves as internal entrepreneurs — people with a spirit of wonder and a sense of adventure. Entrepreneurs do not come in well-defined packages. How many companies in India — or for that matter anywhere — hire a college d;ropout as Bill Gates was? Google and Microsoft hire people who are truly unusual and would probably not make the cut in more staid organisations.

Importantly, the organisation has to be designed so that it promotes a culture of risk-taking, counts failure as acceptable, and breaks the habits and attitudes that lead to complacency, hubris, and denial — a structure that overcomes the inertial aversion to risk that blocks true entrepreneurship. This, among other things, might call for designs that build flexibility into normal processes and hierarchies, to ensure that corporate entrepreneurs are not hog-tied and stymied by bureaucracy. It also calls for instituting appropriate reward and recognition systems. What has worked in many situations is the formation of small entrepreneurial pools — the so-called 'skunk-works' or the spinning off of smaller units of projects into separate modules that function with a high degree of freedom.

NURTURING entrepreneurship is LARGELY about getting the IDEAS factory to work at full BLAST.

The falling apple
I believe we in the Aditya Birla Group, have prospered because of the spirit of entrepreneurship that our employees have consistently demonstrated. And it is the ideas they generate that are at the nerve center of our entrepreneurship. New ideas are fleeting. We normally don't pay even a passing thought to them. In the course of a normal day, we don't consciously work to catch an idea, or spend time to generate it. Our daily schedule is much too structured to allow that luxury. Seizing the idea — that's what it's all about.

If an apple fell on our head, we would think about it only as long as the pain persisted. It's amazing to think about the extent to which the same falling apple stirred the thought process of Isaac Newton! In effect, nurturing entrepreneurship is largely about getting the ideas factory to work at full blast

Let me elaborate a bit on this, with reference to our Group.

As part of our quality and TQM processes, we receive amazingly innovative suggestions from our shop-floor workers. It is gratifying to see that some of these suggestions result in crores of savings annually, on a recurring basis, without requiring major investments. I believe the worker who has gone beyond the call of duty to find solutions to practical problems in her area of work, is in every way an entrepreneur.

Let me give you a concrete instance. Our Group operates a carbon black factory just outside Bangkok, at a place called Angthong. Carbon black is the major raw material for tires. This facility is one of the largest in the world and a pioneer in carbon black technology. Not surprisingly, it is an important supplier to the largest tire companies in the world.

Three years ago, Angthong had torrential rains that almost drowned the entire industrial area. All the factories in the vicinity, without exception, had shut down. The management and workmen of our unit were however, determined to dispatch shipments on time to a customer who was in the midst of critical testing for new-technology tires. A truly committed team of workmen and managers took charge. They used wood from the crates that are used to supply carbon black, creating from them canoes that they dexterously steered through the water to meet their supply commitments. What better example of entrepreneurship through innovation? Needless to say that they had, in showing such an initiative, won a customer for life.

Likewise, through leveraging bold ideas, our cement business has converted waste into an opportunity. Our plant at Reddipalayam, Tamil Nadu, has among the highest use of non-fossil fuels in South Asia, having substituted up to 10.98 per cent of the heat required in FY 2008 through the use of agro wastes, tire chips and chemicals wastes. This is a program that is being extended across our business.

We were the first cement company to set up a municipal solid waste plant in Jaipur to process municipal waste and use it as a substitute for conventional fuels at our cement plant at Khor in Madhya Pradesh.

Given our ambitious growth plans of becoming a Fortune-150 company by 2014, the importance of the spirit of entrepreneurship began assuming higher proportions. So we launched a number of contests that would excite aspiring entrepreneurs from within the Group. For instance, the IdVenture competition provides a platform to aspiring entrepreneurs, individuals, and teams among management employees of the Group to present 'new business ideas' that are capable of being converted into 'start-up ventures' within a time frame. Basically, we are asking them to dream the business venture they always wanted to c;reate, assuming that there are venture capitalists ready to invest.

One of the notable entrepreneurial ideas that emerged was again from our cement division, where they proposed to re-invent the future of concrete by using fly ash and slag which have scientifically proven ability to complement concrete durability. The project has gone on stream.

Let me give you another instance. There are a number of occasions when each one of us believes that there are a few 'not so smart' things done in our organisations. In our minds, these are not in the best interests of the unit / business / group / function or any of its stakeholders. Some of the things done could be out of tune with the ground reality, some not futuristic, and some downright silly.

Every organisation, without exception does have such 'not so smart' things going on. However, smart organisations recognise the 'not so smart' things they do and figure out better ways to do them efficiently or eliminate the process for the benefit of the stakeholders. They also encourage a free flowing culture of ideas — which is essential for incubating entrepreneurial thinking.

TIME and time again, we have seen that the DAVIDS of the business WORLD have run rings around the GOLIATHS.

Conclusion

Let me conclude with the thought that going forward, it will be increasingly critical that large organisations increase their entrepreneurial quotient. Among other things, it means being quick-footed as well as quick-witted. These are basic survival instincts. Recent business history is replete with evidence that the survival instincts of large organisations are often out of sync with a world which is changing the way it is.

We, in business, have to periodically remind ourselves that being large does not, by itself, ensure longevity. The evolutionary process has been rather unkind to large species. We now know for sure that agility and thinking smart count for much more. Time and time again, we have seen that the Davids of the business world have run-rings around the Goliaths. The current environment is made for entrepreneurs. They are the ones ideally suited to c;reate economic and social value. And they can do this even as they engage in what is, for them, a personal passion, a hobby. The start-ups-and the up-starts who c;reate them-are making a huge contribution to the vitality of India's economy, and they deserve their place in the sun.