Performance improvement, not cost cutting, is the key: Bain’s Raj Pherwani
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New Delhi: At Bain and Co., Raj Pherwani helps clients with sustained cost transformation and advises them on taking the company to the next level of effectiveness. San Francisco-based Pherwani, partner and global head of performance improvement practice at Bain, has expertise in leading transformation projects across sectors and is also the firm’s leader in the digital space. In an interview, he comments on sustained cost transformation, disruptive technologies, consolidation in the telecom industry and the future of conglomerates. Pherwani was on a two-week visit to India to meet top company leaders. Edited excerpts:
How do you help clients achieve their full potential?
What we have developed is a lot of experience over 40-plus years of being a company but the steps are roughly the same. The exact way in which it is conducted depends on the specific situation.
If you are really about getting to full potential, the starting point is always about trying to understand what is the mission, why are you trying to get there, why is your company uniquely suited to achieve that mission and then it’s an examination of the current status. Then one develops a strategic fact base to understand where things are, what’s going on today, the point of departure if you will.
Based on what we learn in the point of departure, we then prescribe the path forward. I’d say the best way to do it is what we call client-led, Bain-supported; so what we bring obviously is experience, tools, the ability to conduct rigorous analytics on the specific areas where things needs to be done, the experience in change management, setting up these programmes, etc. You have a sense of where you need to push and we will work collaboratively with the client to recommend an approach depending on what we have learnt. It could take a few months or years, setting up the initiatives, the initiative owners, what are their objectives, how are they tracked—all of that communicated to the organization and being very, very thoughtful about the change- management process.
Is performance improvement all about cutting costs and headcount? Does it always have to be the case?
I don’t think so. I like to think of it as are you utilizing your assets— both people and others in the best way and the reality for most of our programmes is not a cost-cutting exercise but about performance improvement, which is about improving productivity, improving the way you do things so it’s not purely about costs. In fact, I would say if you are just going to cut headcount, a lot of companies do it reasonably well on their own. They can get benchmarks on different functions by industry and find a way to improve it.
I think the big differentiator is the cost that is between functions, cross functional, the cost that you don’t recognize because you haven’t looked at it, so that’s where the process I described to you the strategic fact base can help you understand what are some of the root causes, why you are above cost in a certain metric. What I believe in is, it’s important to figure out the formula for sustained cost transformation.
Technology is disrupting industries and businesses across geographies. How do companies tackle this challenge both for themselves and their customers?
You have to address it—technology is a disruptor and can be a disruptor for the positive. In the short term, it is going to create some issues. Every process, every activity, evolution dictates that you are going to have to do it better over time; otherwise, you will not survive. That’s a fact. Most companies except for those that were born on the Web, are operating paper-based processes that were invented 50 years ago. Paper has been made electronic but the fundamental process has not been changed. Digital is allowing you to change the way you do things.
There is better collaboration, inputs are efficient, analytics are faster so you can do things that you could not do before; so are you going to ignore that and not adopt it? Sure, but it’s at your peril. The great companies will examine themselves and disrupt themselves rather be disrupted. Somebody’s going to do it to you so it’s better if you do it to yourself. I think everyone can agree with that.
What do you think about the Indian telecom scene with Reliance Jio crossing 100 million customers in 160 days?
We’ve looked at telecoms forever and there are some rules of thumb. It’s hard to sustain a market with six-seven competitors so it’s a natural law that over time, the markets will consolidate. Look at the US, for example when I started working at Bain in 1993, we had several players and today, you have AT&T, Verizon, Sprint and T-Mobile, and there are talks of the last two merging.
Natural laws of evolution in business, particularly in telecom, suggest because it is a capital-intensive industry, so regardless of the country, capital expenditure is going to be on the high side.
Most countries have achieved full penetration if not more, and India is probably at that level. So it’s not surprising that you have a very aggressive deep-pocketed competitor like Jio disrupting the marketplace. We had that in the US with T-Mobile and lot of people wrote them off very early but they have done exceedingly well.
I think in the long term, the consumer will win. I think there will be three-four players in a country this size and none of them can take their foot off the pedal on operating as efficiently as possible.
What would be your management advice to Indian CEOs and CXOs?
I’ve had two meetings with CEOS and CXOs in Delhi and Mumbai, and I am impressed by the way Indian companies are operating. So, it is a great starting point, there is great talent in this country.
I would recommend that all companies owe it to their stakeholders including employees to be operating at the highest levels of efficiency. By the way, that means actually investing and getting to those levels of efficiency which means digital, thinking through your processes, constantly reinventing what you are doing, thinking about making your company better to work at and better to work with and if you do that, you will always be in a good position to out-invest your competitors and provide the best value proposition to your customers, therefore command the best prices in your business.
To make that happen, the leaders of these businesses need to have clarity of vision and need to communicate this, and maybe that’s something in India that may not have been done in the past, but I think today the leadership is thinking about it. Just because the CEO says it doesn’t mean that the person at the frontline gets it. As someone said, the corporate strategy and street-level strategy—the connection of that is so important. So what is said in the boardroom is getting translated to someone who is the front-line salesman or at the factory shop floor—this is super important. Last thing, a lot of companies are very, very diversified. I won’t be surprised if in the next five years, you can play every game, I would have loved to be on the Indian cricket team and win Wimbledon at the same time (I did neither), but companies will have to make choices.
I won’t be surprised if large groups separate out and figured out where they want to focus and divest. I have studied conglomerates for a long time and very, very few maybe, 10 across the globe, earn a value more than the sum of their parts. That’s my hypothesis, I may be off base.