June 28, 2008

Company Culture - By Sanjay Anandaram

This is about two companies. Or rather, about the cultures of two very successful and well known companies. As invariably happens, the culture of a company, over time, reflects the beliefs and values of the founders and impacts its performance on multiple dimensions.

One company was started by a group of middle class, educated, aware, passionate individuals. The other was a traditional Indian trading company that was inherited by the foreign returned scion. Capital was scarce for the first company and not so scarce for the latter. Both companies had strong value systems and were determined not to become part of or contribute to the endemic corruption and sloth around them. Hard work and attention to detail were common to both. The foreign returned scion hired a professional management team that enabled him to diversify into newer businesses. The first company stuck to their knitting – perhaps not knowing anything else to do.

The first company had a strong awareness of its social milieu and wanted to make a difference while the second company was singularly focused on building a profitable company. The first company therefore had egalitarian and employee friendly policies – their widespread employee stock option plan included even secretaries and administrative staff. The second company was very significantly owned by a single individual and was less sensitive to employees in general. Both companies were operationally very tightly run with a strong focus on cost management and cash-flows. Both companies valued integrity, ethics, and quality and both created a professional and apolitical working environment. Both companies favoured low-key management styles and valued simplicity.

Over time as the environment changed, the former company set up world-class campuses with world class facilities and employee amenities. The second company felt that such investments were wasteful and even tried to dissuade the other company. It felt that costs of operation would go up thereby hurting its financial performance. The first company then started investing heavily in marketing and brand creation, forging relationships with top tier global customers and academic institutions and in differentiating itself from its global competition. Investing in marketing was seen as an unnecessary expense by the second company since business was pouring in thanks to market dynamics. The first company became a media darling thanks to smart marketing and PR and due to its unique employee and market friendly initiatives. Its leaders were socially and politically aware and were involved in trying to fuel social change through their foundations and public-private partnership programmes. The second company kept a low profile and stuck to its goals of delivering shareholder returns. But over time, the second company too bowed to media, peer and market pressures and set up campuses and provided amenities to its employees. It also tried to become far more visible in social upliftment causes.

The first company listed itself also in the US thereby raising its profile and enhancing its access to customers and capital. It understood the value of market capitalization even while the second company was more focused on operating cash-flows. Its board of directors consisted of internationally leading corporate and academic leaders. The second company was forced to change (due to market and peer pressures) the composition of its board and also get listed in the US.

The first company set up relationships with international top tier academic institutions and started hiring actively from them; It invested in R&D, supported entrepreneurial employees when they spin out ventures, and invested in building relationships with various international entities. The second company was less inclined to support new initiatives and therefore saw an exodus of a large number of people who pursued their entrepreneurial dreams elsewhere. The second company was focused on low investments, cost management, cash flows, and did a world class job in driving operational efficiencies. The first company has grown organically while the second company has made several acquisitions.

The leader of the first company is a thought leader. The leader of the second company reads books like “How to cut costs and double your profits”. Almost all those who have quit the first company are involved in some social development work while those who’ve left the second company appear to be less socially conscious.

While both companies are at the top in their markets, the first company enjoys higher market capitalization, revenues, margins, reputation and brand image than the second. The company has created wealth for a large number of employees and the founders have become small minority shareholders today. The second company is very significantly owned by the head who’s several times richer than the group that set up the first company. None of the first company founder group’s progeny are involved with the company while the second company employs the foreign returned son of the largest shareholder.

One company was unafraid to lead and take steps that were unusual at the time they were taken. The second company was a world class follower learning from everywhere. It is not a matter of good versus bad, right versus wrong kinds of judgemental decisions. It is a matter of company and leadership culture and if it works, it works.

What do you think? What kind of a company do you wish to build?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.