The argument against conventional wisdom

The thought that crossed my mind, as the FM exuded confidence about the durability of industrial success, was ‘what about the public sector’? Here are a clutch of industrial enterprises that are still a drain on the government exchequer. They remain mired in traditional business and organisational practices and have yet to adapt to the forces of globalisation, liberalisation and technology. They remain trapped in what Professor John Hammond of Harvard has referred to as the ‘status quo’ trap, the ‘sunk cost’ trap and the ‘anchoring’ trap.

The status quo trap is the bias that leaders have for the status quo. This is because the sins of commission are often more severely punished than the sins of omission. Why push for change when the organisational culture and the medium of communication is not safe from retribution? The ‘sunk cost’ trap is the reluctance to break away from past decisions because of an unwillingness to admit to mistakes. The ‘anchoring trap’ is the tendency to give disproportionate weight to the first set of data received such that subsequent judgements are skewed (anchored) by these initial impressions. The consequence of these traps is risk aversion and conventional precedent-bound decision-making.

I thought of the state of our public sector because they remain the crucial cog in the wheel of our developmental story. If public sector investments in infrastructure and energy fail to deliver, I cannot see how the current growth targets can be sustained. And how can they deliver without somehow breaking out of these traps and creating an organisational culture that allows for debate and dialogue and a ‘safe context’ for the personal expression of unconventional thoughts.

Two of the most successful business decisions in recent years in the petroleum and petrochemical sectors have been premised on counter cyclical and unconventional assumptions. Reliance’s decision to build a world-scale 700 ktpa petrochemical cracker in Hazira in the late 80s was taken at a time when the largest similar plant in the country was half that size and the conventional wisdom was that the market would have difficulty absorbing such an increment in capacity. Similarly, their decision to invest in the world’s largest greenfield refinery was made against the backdrop of declining refining margins and with everyone including the international oil companies and the Gucci-clad consultants cautioning against the investment. The Hazira investment laid the platform for Reliance to secure 80 per cent of the polymer market in India and the Jamnagar refinery has been among the most profitable in the world. I believe Tata’s decision to acquire Corus will also in time be seen as a comparably transformative business initiative. True, public sector leaders do not operate in a similarly unconstrained environment. But there is no escaping the reality that in today’s changing world, adherence to traditional business models can be costly.

It is not my case — at least not in this article — that we should privatise the PSUs. That is a politically untenable proposition. But we should better understand the ‘costs’ in terms of untapped creativity of an organisational culture that inhibits the free flow of ideas.

Rank and hierarchy are dominant features of all companies. But the questions that must be honestly addressed are: How easy is it for staff in PSUs to challenge conventional wisdom? How often do they feel compelled to remain silent in the presence of senior management? How often do they go with the flow rather than be the exception in the pack?

The cost of such silence is difficult to ascertain but there is little doubt that it impacts a company’s ability to realise its full creative potential. The success of the private sector oil exploration companies in India is not because of international expertise. It is because of former employees of ONGC and OIL.

My underlying thought at the FM’s meeting was a modest one. Could he not bring the power of his erudition to somehow get PSUs to replace the ‘vicious spirals of silence’ with the ‘virtuous circles of communication’ such that the undoubtedly talented within their organisations can overcome their reluctance to be the exception in the pack?

The writer is chairman, Shell Group, India. The views are personal