January 2004

Disruption and uncertainty: Knowing it is there but not knowing what it is

R Gopalakrishnan, executive director, Tata Sons, breaks down the concept of change in relation to today's business scenario

R Gopalakrishnan
In January 1992, the market value of Microsoft crossed that of General Motors for the first time. Today, it would not be imaginable that the converse could happen. In April 1993, the Philip Morris chairman announced a 20-per cent drop in Marlboro prices. Overnight, Philip Morris lost US$ 13 billion in market value. In August 1994, Marlboro was ranked second only to Coke among the world's ost valuable brands. Already in nine years, Marlboro has slipped to ninth position. These are examples of turbulences from the world of big business. Everybody knows turbulence exists. Yet every day, we find people and companies who seemed to have been unprepared, often totally unprepared.

My friend Jamal Macklai, wrote a piece in the Business Standard entitled 'Fear of Volatility'. He expressed the view that India's financial managers suffer from an excessive fear of volatility and that this fear constrained India's growth. He averred that volatility (uncertainty) is a natural state. Everything is volatile. In India, the historic approach to financial sector regulation has been that volatility is bad and must be suppressed. He concluded by saying that it is time to permit volatility in our financial markets and that market operators would learn how to leverage volatility which itself has its own virtues.

In his book Fortune Favours the Bold, Lester Thurow tells us that till 1700, the per capita income in most countries was about the same. Most people in all countries were employed in agriculture and all of them used about similar techniques. Half of the world's GDP was inside India and China because half of the world's population lived there. Inequality among countries started happening thereafter because of new opportunities which some nations grabbed to get richer, while others stayed where they were. These opportunities came in the form of technological disruptions exemplified by the steam engine, electrification and systematic science. Britain led the first two, while Germany and the US led the last.

Unfortunately, some thinkers regard inequality as a disease of the capitalist economic system whereas, in reality, it is the system's basic characteristic. If a nation would regard inequality as inevitable, and seek ways to be the people to leverage the turbulence ahead (globalisation, ecology, etc.) rather than resist and suppress the turbulence, then that nation could get more prosperous.

All this has set me thinking philosophically about uncertainty and disruption in the future, a completely tangential view. I will first describe the nature of the future; second, the perception of change; and third, some lessons about coping.

The nature of the future
Our ideas about the future are shaped by our desire to eliminate or suppress turbulence. This reflects in the way we relate to, for example, the use of energy. When we design engines or earthquake-proof housing, we seek to enhance performance by suppressing turbulence and thus ensure robustness.

On the other hand, when we are exposed to the natural forces of energy, we instinctively leverage the turbulence for enhanced performance. Our erroneous attitude towards the future is rooted in our culturally ingrained notions of predictability and control, a world in which change appears to be linear, continuous, and to some extent, predictable. Linearity is an artificial way of viewing the world and this is ingrained in us socially and academically.

This point about linearity may seem pedantic. All of us would consider the shortest distance between two points to be a straight line and therefore, the most efficient way. This is true. But in nature, there is a hint that this may not be the most effective path between two points. Nature rarely, maybe never, uses such linearity in traversing from A to B, it seems to use a spiral. Witness how a wisp of smoke rises, not in a straight line but in a spiral. Picture a galaxy, the shape of a cabbage, seashells, the shape of our ears. All of them seem to grow from within themselves in a sort of spiral. If you could imagine the flow of water in a stream, it is a similar wavy way in which blood flows in our veins and the sap flows in a tree. So, the issue arises: is there a choice between choosing efficient ways and effective ways? It would be nice if the two ways were identical, but are they?

Acharya Vinobha Bhave led the Bhoodaan movement to redistribute land ownership to the landless. He often told his followers to be like a river i.e. keep flowing, don't get stuck at obstacles, flow around them. His followers sometimes requested him to lead them more aggressively. He said that his task was to create a revolutionary consciousness in the minds of people so that people became their own leaders. He said, "When I meet a landlord, he has many faults and shortcomings, and his egotism is like a wall. But I do not focus on his faults. I search for that little door in every capitalist landlord through which I can enter his heart. Keep flowing like a river, don't get stuck."

The environment is an external force that deflects our lives constantly and, therefore, being on the straight and predictable line is the exception, not the rule. For example, before the invention of the printing press in the early 1400s, people believed that the church and monarchy were the only source of knowledge and wisdom. The printing press helped everybody to read in their own homes. By looking at maps, they could chart new paths; by reading the Bible, they could make up their own mind about ethics and morality. The kings and priests were progressively repositioned as ordinary mortals.

Real life is not a series of interconnected events occurring one after the other like beads strung on a necklace. Rather it is a series of encounters in which one event may change those that follow in a wholly unpredictable way. So the picture about the future can be considered chaotic. To a student of chaos theory, however, chaos is not chaotic. There are underlying patterns in things, and there are reasons why particular things happen. There are spaces in the reasons, so you can make a difference to the outcomes. To understand the nature of the future, one needs to understand the patterns.

The perception of change
When a train approaches a bystander at high speed, a higher pitched noise is felt by the listener as compared to when the train is pulling away. In 1842, an Austrian physicist, Christian Doppler, professor in Prague, stated the Doppler principle i.e. that when a vibrating source of waves and an observer are approaching each other, the frequency observed is higher than the emitted frequency. If the source and observer are receding from each other, the observed frequency is lower than emitted. It is important to note that the emitted frequency is the same, it is the perception of that frequency that is different. The Doppler principle was applied to electromagnetic waves later, and became known as "red shift" of spectra for a receding star and a "blue shift" for an approaching star. So, perception is reality! It is the viewer's eye that matters, not so much the object or the event. Just like when you see me under one frequency of electromagnetic radiation, I look normal, but under X-rays, I look completely different!

We are constantly assailed with the metaphor of accelerating change, an upheaval in the world in which we live. It is true, in one sense and yet in another sense, not quite true because the same data can be viewed both ways. For example, five years ago, the World Village Project published a study that described how our world would look if it were reduced to a population of 1,000 people. Here's the picture:

  • More than 700 of the 1,000 people would live in Asia and Africa.
  • 200 people would possess three quarters of the wealth.
  • The balance 800 who share one quarter of the wealth would live in "substandard" housing.
  • 350 people would be illiterate.
  • Over 600 people would not have access to clean drinking water.
  • 70 people out of the 1,000 would own a car and one person would own a computer.

Why does one interpretation of this suggest an accelerating pace of change and another one, far less so? The linear view of the world fails to explain it. However, a spiral vortex helps.

A spiral moves faster towards its eye than further out just as water gathers speed as it whirls down a drain. In fact, author Theodore Cook has said that the spiral may lie at the core of life's first principles, that of growth. The spiral is fundamental to the structure of plants, shells, the human body, the periodicity of atomic elements, the double helix DNA.

Let me summarise five key ideas:

  1. To understand the nature of the future one needs to understand the patterns.
  2. The straight line is not the common pattern, it is the exception.
  3. Near the eye of the turbulence, it gets very turbulent.
  4. There is a narrow and calm eye, surrounded by a turbulent universe.
  5. You never quite reach the eye, you only approach it.

If this sounds philosophical rather than talking about turbulence in business, it is not coincidental.

Lessons about coping
It is tempting to be prescriptive about how to cope with turbulence: a set of tools and techniques, do's and don'ts are usually suggested. These are useful, but constitute what I call the 'technical' aspects of coping. If one does not have a set of such tools, then one is ill-equipped. However, we do know of companies with many such tools, with scale and size, but which falter in the face of turbulence. Why? Probably they lack the 'values' aspects of coping.

Reverting to the spiral, the values are at the vortex. It is, no doubt, important to live with chaos and uncertainty, to try to be comfortable with it and not look for certainty where we won't get it. However, we should remember that our journey is towards the vortex, the calm eye of the centre, which represents the values we stand for. This causes us to enquire what is the purpose of our managerial actions, the purpose of our business. The great and more satisfying thing in life is a sense of purpose beyond oneself. This provides the values aspect of coping with turbulence. If the purpose is only for yourself, it rapidly dissipates. Today, if economic progress has delivered less than society's expectations, then we know who the enemy is. The enemy is us and our own societies, because what we're fighting against is our own sense of values, our own principles.

Our training in management causes us to learn ways to produce order and consistency: in quality, profitability, planning processes. These are important and necessary, but not sufficient. The task of leadership is to disrupt such attempts at stability through sensitive chaos i.e. a perturbation without losing the real sense of purpose of the business, rooted in values and a larger purpose. If in addition to having the technical tools to cope with turbulence, the organisation's leadership values principles more than they value their companies, the organisation perhaps has the best chance to survive and grow for the long term.

I can do no better than refer to India's business icon in this respect, JRD Tata. Speaking at a meeting in Madras in 1969, he exhorted industry to adopt villages and look beyond business. Soon after, the Articles of Association of leading Tata companies were amended and social obligations beyond the welfare of their own employees were accepted as part of the objectives of the companies.

Today, based on the shareholding patterns of the companies and the resultant ownership by the Tata Trusts, every Tata employee can derive the vicarious satisfaction that as his efforts help to earn a profit after tax, uniquely, about one-fourth of the Group's profit is attributable to the Trusts. These Trusts assist in a wide ranging set of community-oriented activities. Money was never the driving force of JRD Tata's life. What propelled him was the joy of achievement. It is such a viewpoint that caused him to respond to a critic of Tata Chemicals' Mithapur venture, "When we go to a place, we arouse the hopes in people." To those who knew him, he was a warm-hearted and caring human being who wanted to be remembered after his death "as an honest man who did his duty".

I witness discussions about how the Indian economy is now seeing an upturn, how the stock markets are rising and how better days are ahead. I agree with some of these optimistic prognostications, but from my perspective, they are just another twirl in the vortex of turbulence. It should sober us to think that the following first-time experiences in the last half-century confront us — and first-time experiences can be pleasurable or painful:

  • Low inflation, low interest rates and strong growth, all concurrently.
  • An appreciating, strong rupee.
  • Food to export, and it costs us a lot not to do so.
  • Plentitude, not scarcity: food, milk, consumer goods, media, foreign exchange, entertainment.

Yet, paradoxically, India has more poverty and scarcity than most nations in the world! We may marvel that India has transited from planning for distributed poverty to eulogising wealth creation over the last 30 years; let us prepare for the excesses of greed, avarice, and islands of great riches amid oceans of abject poverty. We should remind ourselves of what Gandhiji said "Beware of politics without principles and commerce without morality." Values, and only values, can help us to withstand the political, social and economic turbulence that these will bring. The greatest mistake leaders can make is to assume that results alone matter, and that morality and goodness have gone out of style.

Speech delivered by R Gopalakrishnan at the Trivandrum Management Association, Trivandrum on January 11, 2004.

More Speakers' Forum articles:

Sensitive chaos: R Gopalakrishnan, executive director, Tata Sons, explains the managerial view of how and why India works
Learning to live and living to learn: One must learn to manage oneself well before one can manage others well, says R Gopalakrishnan, executive director, Tata Sons
What injures the hive injures the bee: R Gopalakrishnan, executive director, Tata Sons, shares his views on the three Ps of business: productivity, progress and people, and the importance of managing each well