The house that Rajesh Patil built
In Pune’s rapidly expanding real estate industry, most of his peers regard Rajesh Patil as a bit of an oddity. He has a reputation of being a maverick, someone who does not believe in following conventional wisdom and instead prefers listening to influential voices from outside the industry. They simply couldn’t relate to his world view.
In 2010, the 50-year-old chairman and managing director of Kolte-Patil Developers Ltd had shocked the entire industry when he hired Sujay Kalele, a 28-year-old Indian School of Business graduate, promoted him to chief executive officer (CEO) in a couple of years, and then stepped away to let a new team of professionals run the company’s day-to-day operations.
In the hidebound world of realtors, this was sacrilege. What if the new team mismanaged operations and walked away with precious relationships?
There was more to follow. Patil spent big bucks to be mentored by Ram Charan, the world’s number one CEO coach. Could highfalutin management concepts have practical relevance for a real estate firm in the country? On the advice of his young CEO Kalele, Patil had brought in global IT leader IBM to craft an 11-year-long business transformation project—to use technology to reinvent the way the firm was run. His peers dismissed it as just another enterprise resource planning (ERP) project. After all, a large majority of these ERP projects had failed to deliver results. To top it all, Patil had brought in Deloitte and KPMG as his auditors to tone up his internal governance systems. Now, how could a realty firm that had to pay huge amounts for political patronage afford not to maintain two sets of accounts?
His friends tried drilling sense into him, but he continued to plough ahead with his plans. And every time his peers called him to their industry meets, he would throw up ideas that seemed preposterous. “One day, they decided to stop inviting me altogether,” says Patil, with a faint chuckle.
Two years ago, he entered the Mumbai market, vowing not to use the all-too familiar political patronage model. “In 1989, when I set up the company after completing my engineering degree, I promised my parents that I would never associate with politicians. I’ve stuck to that philosophy. So when we set up shop in Mumbai, everyone asked me how we would survive without help from politicians and the bureaucracy? I paid courtesy visits to all the key politicians, including the Thackerays. Neither did I ask them for any favours, nor did I ever receive calls from them,” says Patil.
In all, Patil says he’s made two trips in his entire career to Mantralaya, the Maharashtra secretariat and the seat of power in Mumbai. When there is a need to meet the chief minister, he says he prefers to leave that task to Gopal Sarda, a relatively young executive who is responsible for operations in Mumbai.
Inside the firm, Kalele, Sarda and the young band of professionals are stepping on the gas. Kolte-Patil has already expanded beyond its base in Pune to Mumbai and Bengaluru. Last year, it clocked pre-sale volumes of 2.1 million sq. ft. This year, it has already exceeded 3 million sq. ft, catapulting the company on to the national stage. In the past three years, its revenues have doubled to nearly Rs.775 crore. A new blueprint for growth is being drawn up, with entry into Delhi and Hyderabad in the next three-five years on the cards. The stock too has been re-rated twice in the past two years.
But more than the numbers, it is the quality of the growth—and how the foundations are being laid for the future—that is worth watching.
Kolte-Patil’s first five years weren’t anything to write home about. Patil had made one more promise to his parents: that he would avoid debt. That meant the company had to double down on the speed of execution, reduce working capital and focus on cash flow so that its capital needs remained low. While this conservatism helped ensure that it was among the few realtors that survived three downturns in the past 15 years, it also placed curbs on its growth.
As a result, it couldn’t acquire land at the same pace as other realtors. The turning point came in 2005 when it bought about 60 acres in Hinjewadi, a developing information technology (IT) district on the outskirts of Pune. Since Patil needed an equity investor to back his project, a friend connected him to Renuka Ramnath, who headed ICICI Venture. Ramnath didn’t seem interested at first. And his peers cautioned him against partnering a big financial institution. “They will eventually take you over,” was the refrain that Patil remembers hearing.
In six months, says Patil, he persuaded Ramnath to visit the site and see the potential. Ramnath was impressed. She quickly spoke to IT industry stalwarts like Infosys founder N.R. Narayana Murthy. Murthy told her that Hinjewadi had the potential to become the biggest IT hub in Asia. Convinced that there was merit in investing in the project, Ramnath began putting pressure on Patil to raise his ambitions and push for a 300-400 acre township. Patil says he began to see the upside and started acquiring more land.
But his organization simply wasn’t geared to manage such large-scale projects. “Renuka kept telling us that we needed to professionalize our organization so that we could handle the scale of projects,” says Patil. “We could no longer adopt the tight set of controls that almost all family-managed businesses had—and continue to depend on loyalists to run the business.”
For the next six months, Patil says he tried wrapping his head around what it would take to professionalize his company. He signed up for management seminars in India and Singapore.
In 2006, Kolte-Patil decided to list so as to bring in greater accountability. Till then, Patil acknowledges that the accounting systems were not up to the mark. Thanks to Merrill Lynch and Edelweiss, who managed the public issue, he was able to understand what they needed to do to improve governance, compliance and accounting standards. That’s how global accounting firms KPMG and Deloitte came to be the firm’s auditors.
“Yet, when we went abroad on our roadshow, I could see that investors were simply not interested. That was the time that DLF was on a high. And unless you had a large historical land bank, investors were simply not interested in your story,” says Patil. He realized it would take a lot more for him to convince the markets that his story was worth listening to. That cash flows and strong execution capabilities—and, above all, respect for the customer—mattered just as much, if not more, than a historical land bank.
The family—younger brother and vice-chairman Naresh, brother-in-law Milind Kolte and he—got into periodic huddles to discuss the need to bring in professionals. When they did, the first tryst did not go off well. Many of the professionals exited within a year or so. In hindsight, Patil says every time a new solution was proposed by the lateral hires, the family tended to either side with the old loyalists or look to the old-timers for cross-validation. That frustrated the professionals.
Patil began seeking out a bunch of people for a series of open-ended conversations on how to professionalize his firm. During the course of those meetings, he ran into Kalele, a young professional who worked with real estate consultancy Jones Lang LaSalle India (JLL). Kalele had come to him with a proposal and struck him as unusually bright and ambitious. So he kept in touch and kept plying Kalele with questions on how professionals like him worked at a global firm like JLL without an owner directly overseeing their work. Kalele explained that global firms used incentive systems to manage performance.
After six months of interactions, Patil asked if Kalele would like to join him. It took almost six months for Kalele to come on board. Initially, he was attached to a small project so that he could get hands-on experience of operations.
Once Kalele was fully on board, Patil asked him to spend the next six months to a year to understand the space and personally took him around the world, introducing him to all his partners, including California-based construction firm Portman and the top echelons at ICICI Group. Even though he was designated as vice-president, Patil says he made sure that Kalele took many of the big decisions that an acting CEO would take. This time around, Patil made sure that he left no doubt among his staff who really was in charge.
Two years later, he promoted Kalele to CEO. He was happy to let the young CEO be the public face, and communicate with investors and customers. “I never saw the point in doing that and wasn’t good at it. I could effectively handle the conversations internally, but if you put me in a public forum, I wasn’t sure how I would fare,” says Patil. And yet, building confidence in the company and the brand was a critical part of the transformation project.
Kalele says he realized the importance of deploying technology in serving customers well, in building Big Data and analytics for better marketing decisions, in creating more effective global sourcing and even faster decision-making. But the question was: how would he, as CEO of a mid-sized realty firm, attract the attention of global tech giants? He found a way soon. Towards the end of 2012, he signed up for a four-day annual seminar on How to Scale Your Enterprise, organized by the Isha Foundation and led by Ram Charan and Sadhguru Jaggi Vasudev. IBM’s country head Shankar Annaswamy and its head of consulting, Jeby Cherian, were mentors at the seminar. On the sidelines of the conference, he pitched the idea to them.
It took several months to thrash out the broad contours of the project. It was a complete business transformation project that used technology to significantly enhance the customer experience and beef up internal decision-making. It meant tearing down existing processes—and creating new ones, using technology to drive transparency, set up global sourcing systems and exception-based reporting systems that freed up management time for more strategic decisions. What’s more, IBM would be paid partly on the basis of the outcomes it helped drive.
The larger cultural transformation was even more critical, and it needed to start at the very top. After all, the bottleneck was usually at the top of the bottle. Kalele says he gently nudged Patil to call in Ram Charan to mentor him and the leadership team.
The first thing Ram Charan made him do, says Patil, was to write down his current skill sets and where he’d like to be five years on. “I was obsessed with how firms like Portman and IBM had globalized. Most of them started out as family-owned firms that had grown from a small town and spread their wings across the world,” says Patil.
After Patil listed out his skills, which included managing the environment, getting approvals on time, managing operations and so on, Ram Charan bluntly told him that none of those skill sets would be relevant going forward. It came as a shocker. Ram Charan told Patil that his mentoring plan was based on Patil’s own aspirations: “You said you want to become like a global firm. For that, world-class processes, an institutionalized culture, organization and leadership development were prerequisites.”
Today, Patil says much of the current work and progress on building the organization has come about thanks to the advice he received from Ram Charan.
Patil says while he’s made himself more or less redundant, there’s one aspect that he’s closely involved in: organizational development. Much like the way he spotted Kalele, he says he keeps in touch with youngsters in the organization to spot potential. And one of the ideas that these young new hires have recently given him: to hire freshers across all departments. Since customer-centricity was a critical attribute, hiring from other realty firms didn’t quite help because almost all of them simply did not care much for the customer. Most developers rarely delivered projects on time, did not bother serving customers or responding to their complaints—even when customers were often forking out more than a crore on buying apartments. The plan now is to induct these youngsters and build a culture of superior customer service. Patil also says the company is now starting to benchmark itself to leading Singapore-based firms on the quality of its construction.
Earlier this year, Kolte-Patil organized a fair for customers in Pune. It attracted nearly 3,000 walk-ins, with high conversion rates. Typically, the annual fair organized by real estate industry association CREDAI (Confederation of Real Estate Developers’ Associations of India) attracts 15,000 walk-ins.
So how has this internal drive to raise standards been received by his peers in Pune and Mumbai? “Most of them still don’t get it. They are far too steeped in the traditional way of doing things. But guess what: the new generation that’s entering family-managed realty firms, at least in Pune, is now asking its fathers and uncles: why can’t we run the firm the way Kalele and his team at Kolte-Patil are doing? For them, Kalele is their role model, not oldies like me. It’s the same story in our firm. The young people in our firm simply reject the old ways of doing business,” says Patil.
Nikeetaa Ghaneckar contributed to this story.
Indrajit Gupta is co-founder of Founding Fuel and Nikeetaa Ghaneckar is an intern in its Mumbai office.
An unabridged version of the story can be read on www.foundingfuel.com-