INDIAN INSTITUTE OF FOREIGN TRADE

MBA(IB)
1 Trimester
Fundamentals of International Management
st

Start-Up Case
ALL ABOVE BOARD
It works in a Myriad ways. The hand of the independent director on the
board of the company, that is.

There is this strictly in-the-realm-of-

grapevine story that the prime movers in the exit of star performer Phaneesh
Murthy from Infosys, following allegations of sexual harassment, were the
companys high profile overseas independent directors. The companys board
boasts personages such as former senator Larry Pressler and former head of
World Economic Forum, Claude Smadja. And no, we have no more details on
that particular story!
Independent directors, essentially directors with no business relationship with
the company (as shareholders, suppliers, even competitors) who exist as a
mandatory SEBI (Securities and Exchange Board of India) requirement for
listed companies the rule says half the board of companies with a nonexecutive chairman needs to be constituted by independent directors add a
significant amount of polish and sheen to the company image.

And they

bring to the table good consel born out of specialization in their respective
fields as well as years of experience. As Larry Pressler observes, Most of our
duties on the Infosys board are to help make business judgments to enhance
shareholder value.

Of course any chance I get to put a good word for

Infosys, I do, but it is such a well-known and gold-plated company that its
reputation is very well established among interested customers.
There is no arguing the fact that independent directors that are names are
good for the brand equity of the company. That could be one reason why
start-ups, especially those in the IT services and Business Process
Outsourcing area, go all out to snare names for their boards. For instance,
Bangalore-based telecom software product company Subex Systems, has high
profile fund manager Vinod Sethi (formerly of Morgan Standley) on its board.
Even large companies, such as Infosys, HLL, and Godrej Consumer Products
can benefit, in terms of brand equity, by having names on their boards. HLL

has C.K. Prahalad, Infosys, the two luminaries named in the first paragraph,
and Godrej, management guru Bala Balachandran.
Companies, however, are rapidly realizing that independent directors can do a
whole lot more than reinforce brand equity or market a company (passively,
of course_ to key target groups. Just ask Anand Mahindra, Vice Chairman
and MD, Mahindra and Mahindra. The M&M board sports names such as Dr.
Ashok Ganguly (former Chairman Hindustan lever) and Anupam Puri (former
chief of McKinsey India). Dr. Ganguly has had years of experience in R&D
and he heads our R&D subcommittee, he has regular meetings with me and
the R&D heads and outlines action-oriented agendas and also lays a lot of
emphasis on accountability for execution of ideas, says Mahindra.

Puri

spends an amazing amount of time with our company and sits down with all
senior executives whenever possible.

Sometimes one gets a lot of

consultation from these members without having to go formally to a

consultant.
Independent directors are particularly important in todays context where
they oversee governance and fiduciary issues.

They also look into the

compensation of working members and issues of succession planning and are

also great as a source of strategy validation, says Nandan Nilekani, CEO,
President and MD, Infosys Technologies.
But how do companies actually go about picking these independent directors?
R. Gopalakrishnan, Executive Director, Tata Sons, who is himself an
independent director on the boards of ICI, Castrol, and Anand Bazaar Patrika,
has a three pronged filtration process whilst picking directors for companies
that he heads.

Personal stature of the director, complementarity of his

background with the others on the board, and how much time he can give
the company serve as three filters.

What I mean by complementarity of

statures is that I dont want three stalwarts who are all lawyers or tax experts
on board, then thats the only subject well wind up discussing at meetings
and if the person is going to be on a 100 boards, then I would think twice
about it.

As for how the search process actually unfolds, IMC (Indian Merchants
Chamber)

President

and

well-known

chartered

accountant

Shailesh

Haribhakti, who is on the board of nine listed companies and several unlisted
ones, recounts, Companies invariably search for independent directors
through their own top management teams. For instance, when I was auditor
of Wockhardt, I knew the finance head of the company well, when he went
on to another company, he recommended my name for independent
director.
The compulsions for seeking the right type of independent director are rapidly
evolving given the global nature of businesses and the need for market
specific knowledge. Take the case of an American multinational that is in the
process of signing on marketing consultant Kamini Banga as independent
director just prior to its entry into the Indian market.

I cant name the

company right now, but they are planning to enter the Indian market and
they find my work experience in their market significant, she explains.
Banga has other interesting observations on the way companies are actively
looking to fill their boards with all the right ingredients. Companies are out
on a limb to get the right kind of diversity into the board. Some companies
are specifically looking for women directors, while others are looking at
representation by a particular community since they realize that the right mix
on the board actually reflects on the bottomline (of the company) and
research is starting to bear this out.
Sharp segmentation in consumer markets is also driving the need for diversity
in the boardroom; a sizeable proportion of customers, for instance, is female.
The appointment and tenure of independent members is not without
controversy. The list of independent directors across a clutch of companies at
any given time reads like a roundup of the usual suspects. Moreover issues
like the age and tenure of these directors are also being actively debated by
corporate governance committees, notably the one set up by SEBI and
headed by Infosys Chairman N.R. Narayana Murthy.

Believers in the laissez faire regime like Harsh Goenka, Chairman, RPG
Enterprises feel that issues of age and tenure are best left to the companies
to decide. And the issue of picking people from the buddy club? Often you
see the same names since they provide the maximum value to a company
and have had successful track records. May be there is some influence of a
network but we are really graduating from that, he emphasizes.
Meanwhile companies like Infosys have constituted dos and donts for their
own execs in terms of independent directorships. For example, Infosys does
not permit any of its working board members, barring Narayana Murthy, from
taking up independent directorships in private sector companies. It is just a
way to ensure that the working members stay focused on the company,
shrugs Nilekani.
Self-policing of this kind should have a ripple effect and is possibly the best
way to ensure that the highest levels of corporate governance are achieved.

Source: Business Today, February 29, 2004, pg. 144-146.

Module I
Case 1 : Apologetic Ajay
Ram Narain, one of the field sales managers of Major Tool Works, Inc., was
promoted to his first headquarters assignment as an assistant product
manager for a group of products with which he was relatively unfamiliar.
Shortly after he undertook this new assignment, one of the companys vice
presidents, Ajay Kumar, called a meeting of product managers and other staff
to plan marketing strategies.

Narains immediate superior, the Product

Manager, was unable to attend, so the Director of Marketing, Vipul Jain,

invited Narain to the meeting to help orient him to his new job.
Because of the large number of people attending, Jain was rather brief in
introducing Narain to Ajay Kumar, who, as Vice President, was presiding over
the meeting. After the meeting began, Ajay Kumar a crusty veteran with a
reputation for blu tness began asking a series of probing questions that
most of the Product managers were able to answer in detail. Suddenly he
turned to Narain and began to question him quite closely about his group of
products. Somewhat confused, Narain confessed that he did not know the
answers.
It was immediately apparent to Jain that Ajay was new to this job and was
attending the meeting more for his own orientation than to contribute to it.
He was about to offer a discreet explanation when Ajay, visibly annoyed with
what he took to be Narains lack of preparation, announced, Gentlemen, you
have just seen an example of sloppy staff work, and there is no excuse for it!
Jain had to make a quick decision. He could interrupt Ajay and point out that
he had judged Narain unfairly; but that course of action might embarrass
both his superior and his subordinates. Alternately, he could wait until after
the meeting and offer an explanation in private. Inasmuch as Ajay quickly
became engrossed in another conversation, Jain decided to follow the second
approach. Glancing at Brewster, Jain noted that his expression was one of
mixed anger and dismay. After catching Narains eye, Jain winked at him as a

discreet reassurance that he understood and that the damage could be

repaired.
After an hour, Ajay, evidently dissatisfied with what he termed the
inadequate planning of the marketing department in general, abruptly
declared the meeting over. As he did so, he turned to Jain and asked him to
remain behind for a moment.

To Jain surprise, Ajay himself immediately

raised the question of Narain. In fact, it turned out to have been his main
reason for asking Jain to remain behind. Look, he said, I want you to tell
me frankly, do you think I was too rough with that kid? Relieved, Jain said,
Yes, you were. I was going to speak to you about it.
Ajay explained that the fact that Narain was new to his job had not registered
adequately when they had been introduced and that it was only some time
after his own outburst that he had the nagging thought that what he had
done was inappropriate and unfair. How well do you know him? he asked.
Do you think I hurt him?
For a moment, Jain took the measure of his superior. Then he replied evenly,
I dont know him very well yet. But, I think you hurt him.
Damn, thats unforgivable, said Ajay. He then telephoned his secretary to
call Narain and ask him to report to his office immediately. A few moments
later, Narain returned, looking perplexed and uneasy. As he entered, Narain
came out from behind his desk and met him in the middle of the office.
Standing face to face with Narain, who was 20 years and four organization
levels his junior, he said, Look, Ive done something stupid and I want to
apologize. I had no right to treat you like that. I should have remembered
that you were new to your job. Im sorry.
Narain was somewhat flustered but muttered his thanks for the apology.
As long as you are here, young man, Ajay continued, I want to make a few
things clear to you in the presence of your bosss boss. Your job is to make
sure that people like myself dont make stupid decisions. Obviously we think
you are qualified for your job or we would not have brought you in here. But

it takes time to learn any job. Three months from now I will expect you to
know the answers to any questions about your products. Until then, he said,
thrusting out his hand for the younger man to shake, you have my complete
confidence. And thank you for letting me correct a really dumb mistake.

Case Questions
1.

What do you think was the effect of Ajays outburst on the

other managers at the meeting?

2.

Was it necessary for Ajay to apologize to Narain? Why?

3.

How would you respond to the kind of apology that Narain

received?

4.

What would it be like to have Ajay working for you? To work

for Ajay?

5.

How does Ajay define Narains responsibilities as an assistant

product manager? How does he define his own role as a top
manager?

Module II:
Case 3: Bangla Resorts (Bats)

Sourav Ganguly, president of BATS., sat down at the conference table with
his management team members, Niloy, Bratin, Amit, and Bipul. BATS. owns
ten Holiday Inns in Georgia, eight hotels of different types in Canada, and one
property in the Caribbean. It also owns two Quality Inns in Georgia. Sourav
Ganguly and his managers got together to define their mission and goals and
to set strategic plans. As they began their strategic planning session, the
consultant they had hired suggested that each describe what he or she
wanted for the companys domestic operations in the next ten years how
many hotels it should own, where to locate them, and who the target market
was. Another question he asked them to consider was what the driving force
of the company should be that is, the single characteristic that would
separate BATS. from other companies.
The team members wrote their answers on flip-charts, and the consultant
summarized the results.

Sourav Gangulys goal included 50 hotels in ten

years, with the number increasing to 26 or 27 in five years. All the other
members saw no more than 20 hotels in ten years and maximum of 15 or 16
within five years. Clearly there was disagreement among the top managers
about long-term goals and the desirable growth rate.
With the consultants direction, the team members began to critique their
growth targets. Amit, director of operations and development, observed, We
just cant build that many hotels in that time period, certainly not given our
current staffing, or any reasonable staffing we could afford. I dont see how
we could achieve that goal.

Bipul, the accountant, agreed.

Niloy then

asked, Could we build them all in Georgia? You know weve centered on the
medium-priced hotel in smaller towns. Do we need to move to bigger towns
now, such as Jacksonville, or add another to the one we have in Atlanta?
Sourav Ganguly responded, We have an opportunity out in California, we

may have one in New Jersey, and we are looking at the possibility of going to
Jacksonville.
The consultant attempted to refocus the discussion Well, how does this all fit
with your mission? Where are you willing to locate geographically? Most of
your operation is in Georgia. Can you adequately support a national building
effort?
Bratin responded, Well, you know we have always looked at the smallertown hotels as being our niche, although we deviated from that for the hotel
in Atlanta. But we generally stay in smaller towns where we dont have much
competition. Now we are talking about an expensive hotel in California.
Sourav Ganguly suggested, May be its time we changed our target market,
changed our pricing strategy, and went for larger hotels in urban areas across
the whole country. May be we need to change a lot of factors about our
company.

Questions

1.

What is BATS mission at present? How may this mission change?

2.

What do you think BATS mission, strategic goals, and strategic plans

are likely to be at the end of this planning session? Why?

3.

What goal-setting behavior is being used here to reach agreement

among BATS managers? Do managers typically disagree about the direction

of their organization?

10

Module III
Case 5: Red Bus

Everyone agreed that Red Bus had problems. The company was operating on
paper-thin margins and could not afford to dispatch nearly empty vehicles or
have buses and drivers on call to meet surges in demand. In the terminals,
employees could be observed making fun of passengers, ignoring them, and
handling their baggage haphazardly. To reduce operating costs and improve
customer service, Red Buss top executives put together a reorganization plan
that called for massive cuts in personnel, routers, and services, along with the
computerization

of

everything

from

passenger

reservations

to

fleet

scheduling.
However, middle managers disagreed with the plan.

Many felt that huge

workforce reductions would only exacerbate the companys real problem

regarding customer services. Managers in computer programming urged a
delay in introducing the computerized reservations system, called Trips, to
work out bugs in the highly complex software.

The human resources

department pointed out that terminal workers often had less than a high
school education and would need extensive training before they could be
expected to use the system effectively terminal managers warned that many
of Red Buss low-income passengers didnt have credit cards or even
telephones to use system, emphasizing that the data they had studied
showed that Trips would improve customer service, make ticket buying more
convenient, and allow customers to reserve space on specific trips.

nightmare resulted. The time Red Bus operators spent responding to phone
calls dramatically increased. Many callers couldnt even get through because
of problems in the new switching mechanism. Most passengers arrived to
buy their tickets and get on the bus just like they always had, but the
computers were so swamped that it sometimes took 45 seconds to respond to
a single keystroke and five minutes to print a ticket. The system crashed so
often that agents frequently had to hand-write tickets. Customers stood in
long lines, were separated from their luggage, missed connections, and were

11

left to sleep in terminals overnight. Discourtesy to customers increased as a

downsized workforce struggle to cope with a system they were ill-trained to
operate. Ridership plunged sharply, and regional rivals continued to pick off
Red Buss dissatisfied customers.

Question
1.

Was the decision facing Red Bus executives programmed or

nonprogrammed?
2.

Do you think they should have used the classical, administrative, or

political model to make their decision? Which do you believe they used?
Discuss.
3.

Analyze the Red Bus case in terms of the six steps in the managerial

decision making process.

Do you think top executives paid adequate

attention to all six steps? If you were a Red Bus executive, what would you
do now & why?

12

Module IV:
Case 7: TVSS Company
In 1978 the TVSS Company underwent an extensive reorganization that
divided the company into three major divisions.
represented TVSSs three principal product lines.

These new divisions

Mr. Sundaram, TVSSs

president, explained the basis for the new organization in a memo to the
board of directors as follows:
The diversity of our products requires that we reorganize along our major
product lines.

Toward this end I have established three new divisions:

commercial jet engines, military jet engines, and utility turbines.

Each

division will be headed by a new vice president who will report directly to me.
I believe that this new approach will enhance our performance through the
commitment of individual managers.

It should also help us to identify

unprofitable areas where the special attention of management may be

required.
For the most part, each division will be able to operate independently. That
is,

each

will

have

its

own

engineering,

manufacturing,

accounting

departments, etc. In some cases, however, it will be necessary for a division

to utilize the services of other divisions to utilize the services of other divisions
or departments.

This is necessary because the complete servicing with

individual divisional staffs would result in unjustifiable additional staffing and

facilities.
The old companywide laboratory was one such service department.
Functionally,

it

continued

to

support

all

of

the

major

divisions.

Administratively, however, the manager of the laboratory reported to the

manager of manufacturing in the military jet engine division.
From the time the new organization was initiated until February, 1988, when
the laboratory manager Mr. Rao retired, there was little evidence of
interdepartmental or interdivisional conflicts. His replacement, Mr. Sampath,
unlike Mr. Rao, was always eager to gain the attention of management. Many
of Sampaths peers perceived him as an empire builder who was interested in
his own advancement rather than the companys well-being. After about six

13

months

in

the

new

position,

Hedge

became

involved

in

several

interdepartmental conflicts over work that was being conducted in his

laboratory.
Historically, the engineering departments had used the laboratory as a testing
facility to determine the properties of materials selected by the design of
experiments and subsequent evaluations of the experimental data. Sampath
discussed this with Mr. Subbu of the engineering department of the utility
turbine division. Subbu offered to consult with Sampath but stated that the
final responsibility for the selection of materials was charged to his
department.
In the months that followed, Sampath and Subbu had several disagreements
over the implementation of the results. Subbu told Sampath that, because of
his position at the testing lab, he was unable to appreciate the detailed design
considerations that affected the final decision on materials selection.
Sampath claimed that Subbu lacked the materials expertise that he, as a
metallurgist, had.
Subbu also noted that the handling of his requests, which had been prompt
under Raos management, was taking longer and longer under Sampaths
management.

Sampath explained that explained that military jet engine

divisional problems had to be assigned first priority because of his

administrative reporting structure. He also said that if he were more involved
in Subbus problems, he could perhaps appreciate when a true sense of
urgency existed and could revise priorities.
The tensions between Subbu and Sampath reached a peak when one of
Subbus critical projects failed to receive the scheduling that he considered
necessary.

Subbu phoned Sampath to discuss the need for a schedule

change. Sampath suggested that they have a meeting to review the need for
the work. Subbu then told Sampath that this was not a matter of his concern
and that his function was merely to perform the tests as requested.

He

further stated that he was not satisfied with the low-priority rating that his
divisions work received. Sampath reminded Subbu that when Sampath had

14

suggested a means for resolving this problem. Subbu was not receptive. At
this point, Subbu lost his temper and hung up on Sampath.

Question
1.

Sketch out a simple organization chart showing TVSSs three divisions,

including the location of the laboratory. Why would the laboratory be located
in the military jet engine division?
2.

Analyze the conflict between Mr. Sampath and Mr. Subbu.

Do you

think the conflict is based on personalities or on the way in which the

organization is structured?
3.

Sketch out a new organization chart showing how you would

restructure TVSS so that the laboratory would provide equal services to all
divisions.

What advantages and disadvantages do you see in the new

structure compared to the previous one?

15

Module V:
Case 9: Lincoln Electric
Imagine having a management system that is so successful people refer to it
with capital letters- the Lincoln Management System and other businesses
benchmark their own systems by it.

That is the situation of Ohio-based

Lincoln Electric. For a number of years, other companies have tried to figure
out Lincoln Electrics secret how management coaxes maximum productivity
and quality from its workers, even during difficult financial times.
Lincoln Electric is a leading manufacturer of welding products, welding
equipment, and electric motors, with more than $1 billion in sales and six
thousand workers worldwide. The companys products are used for cutting,
manufacturing, and repairing other metal products.

Although it is now a

publicly traded company, members of the Lincoln family still own more than
60 percent of the stock.
Lincoln uses a diverse control approach.

Tasks are rigidly defined, and

individual employees must meet strict measurable standards of performance.

However, the Lincoln system succeeds largely because of an organizational
culture based on openness and trust, shared control, and an egalitarian spirit.
Although the line between managers and workers at Lincoln is firmly drawn,
managers respect the expertise of production workers and value their
contributions to many aspects of the business. The company has an opendoor policy for all top executives, middle managers, and production workers,
and regular face-to-face communication is encouraged.

Workers are

expected to challenge management if they believe practices or compensation

rates are unfair. Most workers are hired right out of high school, then trained
and cross trained to perform different jobs. Some eventually are promoted to
executive positions, because Lincoln believes in promoting from within. Many
Lincoln workers stay with the company for life.
One of Lincolns founders felt that organizations should be based on certain
values, including honesty, trustworthiness, openness, self-management,
loyalty, accountability, and cooperativeness. These values continue to form
the core of Lincolns culture, and management regularly rewards employees

16

who manifest them. Because Lincoln so effectively socializes employees, they

exercise a great degree of self-control on the job. Production workers are
paid on a piece-rate system, plus merit pay based on performance.
Employees also are eligible for annual bonuses which fluctuate according to
the companys fortunes, and they participate in stock purchase plans.
Bonuses are based on a number of factors, such as productivity, quality,
dependability, and cooperation with others. Factory workers at Lincoln have
been known to earn more than $100,000 a year, and the average
compensation in 1996 was $62,000.
tangible rewards.

However, there also are other, less

Pride of workmanship and feelings of involvement,

contribution, and esprit de corps are intrinsic rewards that flourish at Lincoln
Electric.

Cross-functional teams, empowered to make decisions, take

responsibility for product planning, development, and marketing. Information

about the companys operations and financial performance is openly shared
with workers throughout the company.
Lincoln places emphasis on anticipating and solving customer problems.
Sales representatives are given the technical training they need to understand
customer needs, help customers understand and use Lincolns products, and
solve problems.

This customer focus is backed up by attention to the

production process through the use of strict accountability standards and

formal measurements for productivity, quality, and innovation for all
employees.

In addition, a software program called Rhythm issued to

streamline the flow of goods and materials in the production process.

Lincolns system has worked extremely well in the United States. The cultural
values, open communication, and formal control and reward systems interact
to align the goals of managers, workers, and the organization as well as
encourage learning and growth.

Now Lincoln is discovering whether its

system can hold up overseas. Although most of Lincolns profits come from
domestic operations, and a foreign venture in the 1990s lost a lot of money
for the company, top managers want to expand globally because foreign
markets are growing much more rapidly than domestic markets. Thus far,

17

Lincoln managers have not developed a strategic control plan for global
operations, relying instead on duplicating the domestic Lincoln system.

Question
1.

What types of control feed-forward, concurrent, or feedback are

illustrated in this case? Explain.

2.

Based on what youve just read, what do you think makes the Lincoln

System so successful?
3.

What changes might Lincoln managers have to make to adapt their

management system to overseas operations?

18