6

Leading Innovation

In chapter 5, we looked at creating a Three-Box Solution through the lens of process, illustrated by the purposefully designed systems and recurrent activities of Willow Creek Community Church. In this concluding chapter, we look at a half-dozen types of leadership behavior that contribute to achieving balance. These leadership behaviors are (1) avoiding the traps of the past, (2) being alert to weak signals, (3) building the future every day, (4) experimenting and learning, (5) practicing planned opportunism, and (6) investing in “the horse you can control” (see table 6-1).

I have chosen a fascinating organization as my laboratory for Three-Box Solution leadership conduct: the Mahindra Group, headquartered in India, which does business in a wide array of industries—from steel, automotive, and agriculture to finance and hospitality. Organizations of such great variety are knit together by leaders able not only to empower discrete divisions subject to very different industry norms, but also to assert shared values and principles that unify the divisions as a coherent enterprise.

Perhaps most notably, Anand Mahindra, leader of the company since 1991, has fashioned a can-do culture that values maverick thinkers, welcomes outside influences, sees risk as a blessing, and hones the hard work of selective forgetting to a sharp discipline. He also practices planned opportunism at the enterprise level, equipping each of the company’s diverse divisions with the capacity to control its own destiny, compete aggressively in the present, and work continuously to develop its future. Mahindra is a leader who embodies the Three-Box Solution in his own behavior and spreads it throughout the business.

Neither processes nor behaviors by themselves are sufficient to guarantee sustainable Three-Box Solutions; like muscle and bone, both are indispensable, interdependent elements. For example, you can look at Willow Creek and see that strong leadership helped make its institutional processes successful. And you will see in this chapter that the Mahindra Group relies on process just as it does on its leaders’ mastery of the six critical behaviors.

At the Mahindra Group, the six leadership behaviors began with a Box 2 problem of nearly gargantuan dimensions: the end of the so-called License Raj system, under which the Indian government licensed and tightly regulated domestic businesses while excluding foreign competitors. That system, which had been put in place in 1947 when India gained its independence from Britain, was in many ways comparable to the Soviet-style, centrally planned economy. The government called the shots, determining who could be in business, what they could sell, in what quantities, and at what prices. Since every business operated thanks to a license from the state, competitive advantage, such as it was, consisted mainly of managing the firm’s relationships with the government agencies that controlled its destiny.

License Raj was intended to allow Indian businesses to emerge and flourish under protected conditions, but it had the unintended effect of inducing complacency, limiting incentives for truly robust competition, and discouraging innovation. As such, it was the exact opposite of a market economy. But since India was closed to outside competitors, each business was at least on a roughly equal footing with all the rest.

While there had been occasional modifications to the License Raj regime, particularly during the 1980s, it remained largely intact until wholesale reforms were instituted in 1991, leaving almost every business at the bottom of a steep learning curve.

Post–License Raj, the Mahindra Group has become one of the most successful global corporations:

• As of 2015, the company’s agriculture division had risen to be the world’s leading maker of agricultural tractors, measured in units sold, unseating US-based rival John Deere.
• After functioning for decades as an assembler of Western automakers’ vehicles for sale to Indian consumers and with no proven competency in designing cars of its own, the Mahindra Group’s automotive division innovated a breakthrough SUV, called the Scorpio. Launched in 2002, it continues to outsell competing vehicles made by Ford, Renault, and others.
• Across the board, the Mahindra Group’s results have been exceptional, especially when you factor in the global Great Recession. From 2003 to 2014, sales grew from $1.35 billion to $17 billion, a thirteenfold leap. Its stock went from $22 in 2002 to $1,418 in 2014, an incredible gain of 6,500 percent (share price converted into dollars).

None of this happened by accident. Anand Mahindra followed a path of balanced priorities in which present, past, and future each got its due. In the process, he helped transform his company from a complacent creature of License Raj into a sustainable enterprise fit for market competition.

Behavior 1: Avoiding the Traps of the Past

After Anand Mahindra graduated from Harvard Business School in 1981, he returned home to India to work in the family business. The Mahindra Group was then a sprawling but sleepy company serving its numerous industry segments. The newly minted MBA first went to work in the company’s flagship steel division.

The steel sector at that time, said Mahindra, “was a very cozy industry” with only a handful of players, all of which produced steel of roughly comparable quality and price using the same methods and technology. The idea of innovating was foreign to the cultures of these companies. But beginning in the 1980s, the government decided to expand the sector by licensing producers that relied on dramatically less expensive induction furnaces rather than the capital-intensive arc furnaces that Mahindra Ugine Steel and the other incumbents used. “So all of a sudden, from an industry where there were five players, it suddenly mushroomed,” said Mahindra, “because you can set up an induction furnace in your backyard!”

Thus, in India’s steel industry, new technology created a crisis of the kind most domestic companies had been able to avoid: the sudden outbreak of a genuine competitive threat. Mahindra commented, “I landed in a company that had finished its best year and then suddenly had to compete—and didn’t know how to spell the word competition.”¹

Looking back, Mahindra reckons that dealing with an influx of new rivals gave him a microcosmic head start in understanding the challenges India would face in 1991 when the License Raj system ended and real rough-and-tumble global competition began. What Indian businesses faced was nothing less than learning to compete from the ground up, which meant forgetting most of what they had taken for granted in the decades since 1947.

Any good project manager would advise that it’s best to break projects of vast size and complexity into small, manageable chunks. As the saying goes, the journey of a thousand miles begins with a single step. But it is also important to choose that first step for the disproportionate impact it will have and for its potential to make subsequent steps proceed more smoothly. Often, project leaders choose so-called low-hanging fruit—something obvious and relatively straightforward that will quickly persuade skeptics that the project’s overall goals are achievable after all.

Turning a Gift into a Bonus

By 1991, Anand Mahindra had moved up from the steel division to assume leadership of the entire Mahindra Group. As License Raj ended, the most urgent imperative was to shake the business out of its complacency as fast as possible. A company’s past is often rooted deeply in its culture—comprising habitual processes, rituals, and belief systems—so, selectively forgetting the past can require shocking the culture out of its habits and expectations, allowing it to rise to the challenge of radically new circumstances.

Mahindra settled on a change that was bound to be difficult and controversial—an explosive mix of symbolism, cherished tradition, and employee entitlement—the annual Diwali bonus. Such bonuses are extra compensation given to workers on the occasion of a major Hindu festival. Although bonuses are generally understood to reward exceptional performance, over time Diwali bonuses came to be more like gifts. As such, Mahindra saw them as emblematic of the wide gulf between the level of complacency under License Raj and life in a normally functioning marketplace.

In short, the Diwali bonus was a hot-button tradition he could use to make a powerful point. The Indian economy was in shambles and the company was in trouble. Mahindra was not in a gift-giving mood. “The first time we had to give the bonus, I said, ‘Why? A bonus for what?’ And the answer was, ‘A bonus because we have always given one.’” Mahindra shook his head and replied, “A bonus cannot be an entitlement. It is for performance. It is something extra given in exchange for extra performance.” He canceled the awarding of the bonus.

The news festered in the company for a few days. Then Mahindra looked out his office window one afternoon and “saw this line of workmen sneaking out of the factory building and coming up toward me, screaming for my blood.” Under siege, he held them off for four hours, finally agreeing to sit down with a delegation of workers the following day. In that meeting, he said, “We could point to the fact that the country was out of money, that the government had opened up and was allowing imports in [and] was allowing global players to compete in India. We could point to Indian companies that were already floundering. We were able to use the environment to emphasize that we had to forget the paradigms of the past. The new environment demanded a new set of processes and rituals to meet higher workforce productivity, where just showing up was insufficient. ‘You’re going to have to work for it. Bonus now means what it etymologically means!’ That is how we were first able to make the organization [begin to] forget the past.”

Leading with Steadfast and Visible Conviction

There’s no question that to draw a line in the sand takes courage. But it is impossible to overstate the importance of such highly visible public displays of leadership, especially when they are grounded in reality and expressed with true conviction.

The Diwali bonus episode began a series of labor challenges that spanned a number of Mahindra Group divisions, including a three-month shutdown at an engine factory. These were predictable symptoms of a massive campaign of forgetting. Forgetting is never easy, and Mahindra’s goal was no less than to replace the complacent legacy culture with a performance-driven culture.

Surviving this period of labor unrest, said Mahindra, “was a major turning point. Once we finished with that, we achieved a 120 percent rise in productivity.” It was as if the fever broke. “We never looked back.”

Behavior 2: Being Alert to Weak Signals

Weak signals are the raw material from which nonlinear ideas are formed. The relatively few, widely distributed (and mostly young) mavericks within your organization who are least influenced by the dominant logic of past success are, temperamentally, the people most likely to tune into weak signals. Therefore, a key leadership responsibility is to identify these mavericks and make sure their ideas are heard and valued (see the sidebar, “Tapping into Weak Signals”).

Mahindra developed a reputation for tolerating maverick thinkers—people who sometimes clash or don’t fit in well with their colleagues. His tolerance for such characters is almost entirely opportunistic. Mavericks see the world in ways others don’t and thus are more likely to conceive of unconventional solutions. Unfortunately, they can be abrasive, and that often attracts more attention than does their brilliance, causing the business to lose out in the long run.

Learning Why Mavericks Matter

Mahindra was fortunate to learn, early in his tenure, the difference mavericks can make. Among Mahindra’s various duties as head of the company was to oversee R&D across the divisions. In 1991, he encountered a difficult situation in the automotive division. The unit manufactured a six-seat Jeep version that typically served as transport for so many people—sometimes fifteen to twenty riders—that the chassis eventually would crack from the stress of frequent overloading. The volume of cracked chassis became a major problem.

Since the company’s engineers couldn’t change the way customers used the vehicles, they decided to design a new, more rugged chassis equal to the usage demands. But the new design was going to require new metal-stamping machinery that would cost the equivalent of $8 million. “In those days, that was an enormous amount,” said Mahindra. “Nobody had the courage to authorize such capital spending.”

The impasse was broken when Mahindra’s deputy called his attention to a young man, Sandesh Dahanukar, who had the idea to develop a tubular chassis that would satisfy the heavy-duty design specifications but not require buying new metal-stamping machines.

Trusting in a Calculated Risk

“We allowed Sandesh to experiment with $15,000 in seed capital,” said Mahindra. “We staged the risk in three installments. The worst that could happen is we’d lose $15,000. But if we can’t trust mavericks like Sandesh, we will never forget old ways of doing things. We’ll never embrace and pull off change. We were able to give him that kind of money, and at each successful milestone down the road we gave him more. And right away that cured all the chassis-cracking problems. It was a very big triumph, because here was this seemingly intractable problem [that demanded] a huge investment. And we had found a way to solve it by trusting this guy.”

According to Mahindra, during Dahanukar’s tenure in the company, “he was never able to work well with others. But people knew that I had this tolerance for such personalities.” Mahindra had Dahanukar report directly to him to insulate Dahanukar from the pressures applied by dominant logic. (Recall from chapter 3 how the new monkey, without similar “air cover,” was quickly brainwashed by the old monkeys.)

In the end, investing $45,000 in an unconventional solution saved Mahindra & Mahindra nearly $8 million. The experience embedded in Anand Mahindra an appreciation for the value of calculated risk taking by betting on mavericks. And his willingness to listen to their unconventional ideas percolated through the company’s leadership culture and even beyond, because once creative mavericks learn that their ideas can win acceptance at the highest reaches of the business, they express them more often and with greater confidence.

In a 2014 commencement address Mahindra gave at the Indian Institute of Management, Ahmedabad, he exhorted graduates to take risks like the ones he took with Sandesh Dahanukar. “I have found that the days that I see now as wasted days of my life were those when I didn’t take an acceptable risk that I could have conceivably taken, when I didn’t ask myself if there was a new and different way to do what I was doing, when I didn’t set my sights as high as I possibly could have.”²

Behavior 3: Building the Future Every Day

Mahindra’s first several years in charge of the company were all about turning Box 1 into a well-functioning engine of competition. Across India, businesses accustomed to having the government make their most important decisions for them had to learn how an open marketplace worked. To be sure, it was heavy lifting for all of them. “There are times in a company’s history when you will overspend time and energy on one of the boxes,” says Mahindra. “Given that we were coming out of the License Raj, our primary focus in the early 1990s was to improve performance in the core businesses—typical Box 1 fare.”

For example, the License Raj system specified production quotas that factory workers were often able to achieve in only four hours of effort a day. Mahindra said, “We had to make the company realize what a ‘pull’ system is—that you deliver according to the market needs … not simply ration out products according to some predetermined, government-imposed quota. Quotas were out!”

Mahindra drove high performance in Box 1 by establishing stretch goals for productivity, business process reengineering, and short-term financial targets, and aligning metrics and incentives with measurable results in all three areas. By the mid-1990s, the Mahindra Group was prospering well enough to think about the future. And in any case, said Mahindra, “leadership is about balance. We have to learn to operate in all three boxes at once.”

Federal Structure

The future is shaped by the actions you take today. Breakthrough business model innovation can happen tomorrow when leaders implement breakthrough organizational design today. It’s quite likely that Anand Mahindra’s greatest Box 3 organizational innovation is the federal structure he devised for the Mahindra Group in 1995. The federal structure prepared the company to pursue breakthrough innovations he never could have imagined when he put it in place.

The structure had three distinguishing characteristics.

First, Mahindra had inherited a company that was functionally organized. For example, a vice president of manufacturing supervised factories across multiple divisions that competed in various industries and produced a diverse array of products. It is easy to see how, under such a scheme, focus suffered when strategy was centralized. Federal structure reorganized the Mahindra Group into six sectors—automotive, auto components, farm equipment, financial services, software, and infrastructure—with each sector operating independently under the leadership of an empowered, accountable CEO. Management could focus single-mindedly on competing and growing within the industry sector, taking full advantage of the rapid growth India’s liberalization unleashed.

Second, Mahindra pledged that once a business unit reached critical mass, it would be listed on the stock exchange. Investors could then buy shares in individual Mahindra Group units without also having to buy the rest. (To date, separately listed companies include Tech Mahindra, a software-services unit; Mahindra Finance, which facilitates tractor purchases by providing farmers with financing; Mahindra & Mahindra (M&M), the automotive and farm equipment sectors; Mahindra Lifespace Developers, a real-estate development unit; and Club Mahindra, a time share vacation hospitality business.) This is in sharp contrast to a conglomerate, a multibusiness organization whose stock price reflects the combined value of its business units. Modern finance theory attaches a “conglomerate discount” since investors can more efficiently diversify their portfolios. A federation, on the other hand, is a collection of independently listed companies, each focusing on one area but all tied together by a common owner.

Third, in Mahindra’s federal system, the corporate center doesn’t just sit back and count the money. It provides “tying together” services by facilitating knowledge sharing across the portfolio of companies; leveraging operating synergies in R&D, procurement, and manufacturing; and acting as the custodian of values that every operating company shares. In these respects, Mahindra makes two key distinctions between his federal approach and the practices of private-equity firms (PEs), which own rosters of independent companies of various lineages. To quote Mahindra, “PEs turn companies around through financial reengineering. We do it the hard way, through strategic and operational transformation. There is another difference: we take the long view. Venture capitalists usually have a vesting period of seven years. For us, that would be a grave error. In Club Mahindra, had we taken the classic PE approach in the seventh year and sold out, we would have lost the opportunity to transform a $5 million investment into a $1 billion business.”

The federal structure provided the business units with liberating autonomy but also with enough governance to knit them together—via shared purpose, values, resource sharing, accountability, and Anand Mahindra’s leadership—across dramatically different sectors. In other words, they each had distinctive agendas defined by their industries but enough kinship that they were family, as opposed to a bunch of random strangers gathered at a bus stop.

By creating a structure that rationally allocated areas of focus, leaving management focus to the unit CEOs and goal setting, knowledge sharing, and overall governance to the federal center, “[o]ur goal was to convert the ‘conglomerate discount’ into a ‘federation premium,’” said Mahindra. “Unlike the conglomerate structure, eventually our vision was to create a federation of independently listed companies, each one subject to the market test and market discipline.”

Mahindra’s experience shows that structural innovations can be nonlinear. If the future is to be created daily, a business must be designed to allow that to happen with the least possible structural friction.

Creating Overarching Strategic Focus and Purpose

Architecture isn’t all that’s required. Despite Mahindra’s best efforts to create empowered, autonomous divisions, by the year 2000, he was concerned that the market wasn’t properly valuing the company as a whole, and some units were underperforming. After gathering outside opinions, which ranged from darkly gloomy to optimistic, he realized that he was likely the cause of some of the company’s marketplace challenges. “Obviously, I was not communicating the levers of value that we were building” Mahindra said. His initial conclusion was that he needed to find a way to improve communications, both internally and externally. However, further analysis convinced him that there was a lack of strategic clarity across the diverse divisions.

To do this and to express the company’s core purpose and values, in 2002, Mahindra launched what came to be known as the Blue Chip Conference, an annual event for company executives that would articulate an aspirational goal for the coming year. In doing this, he put himself and the contemporary Mahindra Group in closer alignment with the company’s founding principles circa 1945 (two years before Indian independence). In essence, the Mahindra Group of that era wanted to be a different kind of company—to value the dignity of work and workers, to profit while behaving ethically, and to contribute to the building of India’s global reputation by creating products that were second to none.

The Blue Chip Conference has become a yearly platform for recommitting to this idea of being a different kind of company. The conference agenda cuts across industry sectors and sets expectations around themes, such as customer focus and global leadership, and hard targets for revenue growth from recently innovated products and services. And it sets stretch goals for future performance. From the launch of the conference—ironically, in the very year the Mahindra Group was delisted from the Bombay Stock Exchange (it was reinstated in 2007)—the company began a period of unprecedented growth.³

Moreover, by articulating a shared agenda that cuts across the six diverse sectors, the Blue Chip Conference serves as a demonstrably coherent way of explaining the company to itself. Thus, divisions and lines of business that spend much of their time entrenched in their own sector priorities, operating under the impression they have little in common with the other divisions, have the opportunity to see that they are part of something larger, with meaning and purpose beyond the sum of their parts.

Finally, the conference is a useful way of showing the fruits of change over time within the context of an almost seventy-year-long commitment to core values. And it asserts a clear direction for future innovations. As such, it reinforces the cyclical essence of the Three-Box Solution.

Behavior 4: Experimenting and Learning

The most notably successful product innovation to come out of M&M is the Scorpio SUV, launched in 2002. The Scorpio design effort was the division’s inaugural effort to create an original vehicle. Until that point, M&M had been a licensed manufacturer of Jeep for the Indian market. As such, the division typically followed a recipe provided by its multinational partners, though it sometimes tinkered modestly with the recipe to localize for Indian preferences and usage requirements.

To be sure, these partnerships had taught the company to be a highly competent and efficient manufacturer. But to attempt an original vehicle design was a project of far greater magnitude than anything the company had ever done, filled with equal parts exhilaration and risk.

In 1993, anticipating this kind of move, Anand Mahindra had hired Pawan Goenka, a fourteen-year veteran of Detroit and General Motors, to lead R&D at M&M. While at GM, Goenka had specialized in engine design, though not, he said, the entire engine. “I specialized in certain portions of engines. So when I came to Mahindra, it was to look at the whole automobile. This was a total change of career.”

Transitioning from the component level to the vehicle level excited Goenka, and Mahindra promised him complete freedom to run automotive R&D as he saw fit. “What got me to Mahindra was the fact that there were signs of the Indian automotive industry veering into the second phase of its evolution,” commented Goenka.

Before the Scorpio project came along, the focus of R&D at M&M was primarily on making incremental improvements to vehicles produced under license. If Goenka had begun to reconsider the wisdom of leaving Detroit, doubt vanished when the Scorpio project materialized in 1997.

During one of his plant visits, Anand Mahindra was shown a sketch for an SUV (that would become the basis for the Scorpio). The sketch was dreamed up by a twenty-six-year-old design-school graduate, Shyam Alepalli, who had never before created a car. Mahindra said that when the young designer showed him a picture of the Scorpio, “I remember that something in my gut was piqued, and I said, ‘You know, what we’re looking at here is the future of the company.’” Recalling that incident, Mahindra reflected, “[Shyam’s] boss told me, ‘This guy can’t get along with anybody.’ The moment he told me that, it was like some light went on in my head. I said, ‘Perfect. If he can’t get along with anybody, he is probably like Sandesh and I’ll give him a shot.’”

Mahindra was the third generation of his family to lead the company. With his Harvard MBA and a distinctly modern outlook on strategy and operations, he hoped Scorpio would help him update both the image and the performance of what was then a fifty-plus-year-old business.⁴ M&M’s reputation in the automotive sector rested mainly on its production of Jeeps for use in rural settings. In those agricultural regions, customers best knew the Mahindra brand for the rugged tractors the company made. But its vehicles had relatively low market penetration in urban settings where multinationals held sway, and the company was not known for automotive innovations.⁵ Scorpio would change that.

Linear or Nonlinear?

According to Goenka, from the start, there were two possible innovative directions in which to take the division’s first original vehicle: Box 1 or Box 3. Or, as he described the options, “trying to do better what others were already doing or else doing something totally different.”

Although some within the company favored taking a conservative “do the same thing better” approach, Goenka, given his background, thought it unlikely that Mahindra could beat the Detroit automakers at their own game. They would need to create not only an unprecedented vehicle, but also a new way of playing the game.

“Don’t try and take the traffic head-on,” said Goenka, “because the chances that you will win are not very high. You will have to divert the traffic [by coming out] with a product that in the Indian context would serve a new segment where nobody is present today.”

M&M had plenty of experience with the rugged Jeep vehicles that are the antecedents of today’s SUVs. But as of 1997, there had never been a sleek, modern, Indian-designed SUV, one that a wide variety of consumers would be attracted to and could afford to buy. And the ultimate idea from a marketing standpoint was to give the M&M brand a more cosmopolitan appeal and launch an SUV that eventually could compete globally.

Liberated to Go It Alone

The option of entering into a joint venture with Ford Motor Company went off the table at an early stage. Anand Mahindra described unveiling the Scorpio design to top Ford executives, including then-chairman Alex Trotman and vice chairman Wayne Booker. He had told them the development budget was the equivalent of $120 million, whereas Ford estimated that it would have invested more than a billion dollars to produce such a car in the United States. As Mahindra laid out the proposed Scorpio project, the Ford executives listened attentively, looked at clay models based on the young design-school graduate’s original sketches, nodded their heads, and declared, “Not bad.”

Then Booker suggested to Trotman that, given M&M’s lack of experience developing original vehicles, Ford should send over dozens of its engineers to help with the project. Mahindra recalled that Trotman replied, “Wayne, we’ll do no such thing, [because] if we send them thirty engineers, this car will come out looking, smelling, and costing as much as a Ford. And we don’t want that … If these guys produce this car for the price they’re claiming, then we better learn how to make cars from them.”

Mahindra recalled this as a very fortunate, very liberating moment. “If they hadn’t left us to jump in the deep end, what would have happened? We might have never learned [how] to build a car.”

Looking back, Goenka remarked that Scorpio “showed us that we had the ability to start from nowhere—no people, no process, no design knowledge—and build all those capabilities. I think the rub-offs and collateral benefits from the Scorpio were huge not only for the [automotive division] but for the entire group.”⁶

Experimenting with Experimentation

As I have stressed throughout this book, iterative experimentation is the key to resolving uncertainties, testing assumptions, increasing learning, and reducing risk in any Box 3 project. Whatever future Scorpio might create for the Mahindra Group, the project was sure to be risky. Consequently, experimentation would be an essential part of the Scorpio program. The experiments would include not only technical matters relating to the Scorpio design, but also the way the new vehicle would be marketed, capitalized, and produced.

Goenka devised a most unusual way of testing possible business model solutions for Scorpio: he sought approval to develop, at the same time as Scorpio, a new version of an existing vehicle to be called the Bolero—a somewhat smaller, lower-cost SUV that could serve as a test bed for Scorpio parts, technologies, design, manufacturing, and marketing strategies. So while Scorpio was certainly both the first SUV to be conceived in India and the first original Mahindra & Mahindra vehicle design, the Bolero was hustled into existence in large part to be a nexus of experimentation for Scorpio.

For example, said Goenka, M&M used Bolero to test its ability to design and manufacture original body panels, which the company previously had outsourced. “It helped us develop the confidence that we could do it ourselves,” Goenka said. Indeed, many other parts and systems conceived for Scorpio were likewise first tested on Bolero. And every tested component was also—especially in the case of technologies to be provided by outside suppliers—a test of Scorpio’s novel sourcing strategy (see later).

Although the Bolero project was initiated later than Scorpio, it arrived on the market a full two years before the Scorpio launch. One reason for fast-tracking Bolero so aggressively was to build in enough time for the various experiments it hosted to produce results and allow for needed improvements to be incorporated in Scorpio. “Three months would not have been enough [cushion] for experiments,” said Goenka. The fact that Bolero was not a newly conceived product but an existing vehicle platform made possible the two-year window, during which it could function as a large-scale, in-market experiment for Scorpio’s ultimate benefit.

Dedicated Team

A dedicated team of about 120 people was assembled to develop Scorpio. The group was divided into small cross-functional teams, and all were situated in an area that allowed them to be in close proximity to one another so that no conversation was more than a short walk away.⁷ The entire team reported to Goenka. To build a cohesive team culture, the members, including its leaders, wore uniforms.

Apart from such symbolic enablers of team culture, there were other key factors driving the effort’s eccentric design. Chief among them was that M&M had no track record in new vehicle design. Of course, if the company had no successes to brag about, neither did it have any failures to regret. In that sense, M&M had the advantage of beginning with a blank slate and no baggage. And before doing anything else, it would have to invent new rules for new vehicle design.

The best way to exploit a blank slate is with open-minded developers who embark on a project with as few preconceptions as possible. For that reason, the dedicated team’s demographic skewed toward youth, with an average age of twenty-seven. Young people are less deeply invested in old ways of doing things and innately more willing to think and act differently. In order to get Scorpio right, the development team would have to be exceptionally creative, adaptive, flexible, opportunistic, and, above all, ruthlessly frugal.

Indeed, Anand Mahindra believed that the most radical innovation of the Scorpio effort wasn’t so much technical as it was about changing the state of play. “It was doing more with less. Frugal engineering was the truly Box 3 aspect of Scorpio,” he remarked.

Not Just Suppliers, but Development Partners

Both the requirement of radical frugality and M&M’s lack of deep automotive design experience drove an experimental approach to sourcing relationships.

Detroit-style supplier relationships were both dictatorial and uncreative. Suppliers stuck to their subservient role. The automaker did all of the design work in-house and dictated specs to the supplier. The supplier then executed the designs exactly, with no opportunity to showcase original ideas or ingenuity. This sometimes cost automakers the loss of a supplier’s ideas for delivering greater functionality less expensively, but that was the way of the world.

M&M, on the other hand, wanted to tap suppliers’ ingenuity by enlisting them as design partners. Suppliers, therefore, were given unusual latitude, within a specified budget and performance thresholds, to create systems as they saw fit.⁸ Examples of supplier partners included Korea’s SL Corporation (formerly Samlip Industrial Co.) for the suspension system, India’s Lumax Industries for automotive headlamps, and the US’s Lear Corporation for automotive seats. Suppliers valued the opportunity to display their knowledge and to learn and stretch. According to Mahindra, “All the major systems were designed and engineered by suppliers … M&M’s involvement was limited to specifying performance targets and costs and acting as an integrator in bringing together the components to create the final project.”⁹

Fortunately for M&M, the timing worked to Scorpio’s advantage. The Scorpio effort coincided with a period of overcapacity among automotive suppliers. According to Goenka, many large multinational suppliers of automotive technology—Behr, BorgWarner, Lear, and others—had opened facilities in India, hoping to attract business from US automakers. But the business had been slow to materialize. So, said Goenka, “they were very keen to develop a new product … expecting that Scorpio could grow into a large-volume play for them.” And Indian suppliers were persuaded that their ability to succeed in the global market depended on developing strong engineering skills. “Many of the suppliers would tell you that the reason they’re able to do engineering today is that they worked with us fifteen years ago and had to learn engineering,” Goenka continued.

In this and other ways, M&M was able to develop highly collaborative supplier relationships that nonetheless stayed within its frugal budget. Indeed, the company leaned heavily on suppliers to hold down costs. And the fact that these relationships were transparent and collaborative allowed for a high degree of two-way communication between suppliers and M&M.

There were two motives behind the decision to grant suppliers such creative autonomy: to compensate for M&M’s lack of key skills and to enlist suppliers as genuine partners in finding ways to hold down costs. M&M’s head of strategic sourcing, Johnny Mapgaonkar, described this give-and-take: “If they could not deliver on a contract, we were happy to renegotiate. Whenever they returned to us with increased costs, we cooperated with them to find a solution that worked within the budget. The process was initially difficult because they were not used to auto companies listening to their advice … but over time they realized that we wanted to cooperate. We later realized that suppliers would approach us [on their own initiative] with cost savings!”¹⁰

The cost to develop Scorpio may have been one-tenth of what a big automaker would have invested, but it was still the biggest bet the Mahindra Group had ever made. “You have to forget that you have never spent this much money on any project before,” said Mahindra. “You have to forget that you don’t have any of the competencies and gateways and processes to build a car. You just have to have a very, very burning desire to transform and to get into another orbit.”

Expanding M&M’s Market

One higher orbit Anand Mahindra wanted to reach was reputational. His burning desire with Scorpio was to break free from M&M’s limiting association with rugged rural vehicles. Not that there was anything wrong with serving rural customers, but modern, cosmopolitan India—and beyond—offered a wider, more affluent market to crack. Bolero was able to play a further experimental role in testing the appeal to India’s urban consumers of a well-designed, well-featured SUV.

Though Bolero was smaller, less expensive, and not as finely appointed as Scorpio would be, it was designed to be stylish and comfortable and at least as much fun as functional. And it was a test of new marketing approaches that emphasized a more subtle set of messages and concepts than M&M was accustomed to using. Previously, said Goenka, the company’s automotive marketing had been “very generic,” focused more on function and utility than on style and sizzle. Bolero broke new ground by inverting those virtues and beginning to establish credibility with buyers in urban centers.

Before the Scorpio launch, M&M concluded it was best not to highlight the Mahindra brand but instead to make it dramatically subordinate to the name of the car. In all advertising, said Goenka, “we called it the Scorpio. Then, sort of below in fine print, ‘by Mahindra.’ But it was never the ‘Mahindra Scorpio’ or the ‘Scorpio by Mahindra.’ And Scorpio TV commercials tried to capture the aspirational feel of a ‘typical commercial for Rolls Royce,’ which the Indian public connected to very well.”

The Scorpio marketing team also decided not to call it an SUV. A market for SUVs had not yet developed in India, and Goenka said the term would have meant relatively little to Indian consumers: “Instead, we just called it a car.”

Goenka, with his roots in engine design, took pride in Scorpio for another reason; it was the first car in India to offer an engine of greater than 100 horsepower. “I think we had 109 horsepower at the time, which was unheard of in India in the mass market,” he commented.

Practicing frugal engineering, the high-quality, low-cost Scorpio was offered at a price of 30–40 percent of competitors’ vehicles. In January 2003, it was named the “Car of the Year” by three separate organizations.¹¹ In the first eighteen months after Scorpio launched, Indian consumers snapped up nearly thirty-five thousand of the cars. Most of the buyers were urbanites, and Bolero was eventually repositioned to play an aspirational role for rural consumers. Scorpio continues to outsell competitors in India, and it has expanded into many other markets, including those in Asia, South America, Europe, Africa, and Australia.

Scorpio wouldn’t have happened without Anand Mahindra’s gut instinct about the Mahindra Group’s future. It was pure entrepreneurial risk taking and, as Goenka observed, it defied the meticulous calculations of conventional business planning. At the time, he said, the thinking boiled down to this: “We don’t care what the IRR [internal rate of return] is. We don’t care what the NPV [net present value] is. We don’t care whether we can afford it or not afford it. But if we don’t do it, we know we won’t [continue to] exist.”

Finally, like Mahindra, Goenka sees Scorpio as a full 360-degree innovation. It was a new product category aimed at a new market, relying on a new development strategy, radical cost goals, and a new business model. “We used Bolero as an experiment and learned a lot before placing the bigger bet on Scorpio. A lot of people think of Scorpio as a product innovation,” he said. “It is a lot more than a new product. We managed to create in Scorpio a symphony between the product and the market. We invented a new business system. And that is what made it succeed.”

Behavior 5: Practicing Planned Opportunism

One of the qualities I have noticed in Anand Mahindra is that when he addresses problems or opportunities, he doesn’t think of them in isolation. He looks beyond a problem—or, indeed, an opportunity—to the matrix of conditions and circumstances that have made its existence possible.

A good example is how he approached the problem of the marketplace placing too low a value on the Mahindra Group’s various businesses, both separately and together (as mentioned earlier in this chapter). Mahindra wanted not simply to fix a problem, but to understand on as many levels as he could what had made it possible.

For instance, among other conditions, he identified his own lapses as a leader and communicator as contributing factors. It took a capacity for humility on his part to accept personal responsibility. But he didn’t merely change his own behavior; he went further to identify a lack of strategic clarity across the company. He then proposed a mechanism, the Blue Chip Conference, to sharpen the focus of every division on key strategic priorities. As a result, the Blue Chip Conference became a way not only to fix a problem, but also to prepare for whatever challenges or opportunities the future might bring.

Mahindra’s unusual thought process reveals the importance of planned opportunism. Relatively speaking, fixing a problem is a low-value activity, whereas changing the conditions that lead to a problem is at the heart of planned opportunism. Over time, addressing particular problems becomes an opportunity to more ambitiously change the game.

In that context, Mahindra’s decision in 1993 to hire Pawan Goenka to remedy M&M’s troubling lack of automotive design expertise was a prescient step toward a much more wide-ranging transformation of the business: to build an increasingly confident engineering capability over time. This, in a sense, is not unlike Keurig’s decision to hire Kevin Sullivan, with his GE background, to build up Keurig’s capacity for product innovation in the demanding consumer market. Such foresight is an essential aspect of planned opportunism. You are looking around the corner to a future need. In 1993, four years before the start of the Scorpio effort, Mahindra was anticipating an opportunity that had not yet arisen. When it did, Goenka was eager to take it on.

But Goenka conceded that when he returned to India after his fourteen years at General Motors, with its billion-dollar R&D budget and army of twenty thousand engineers, he was not quite prepared for the state of M&M’s R&D: a shed housing fifty engineers. He commented, “I must admit that the starting point was a lot less than what I had imagined.”¹²

Fortunately, in the early 1990s, Anand Mahindra had toured ambitious research centers, such as Xerox’s PARC and Chrysler’s R&D facility in Auburn Hills, Michigan. And he was struck by the way the physical design of such facilities, with the cafeteria as their hub and de facto commons, stimulated spontaneous, casual interactions among engineers. Mahindra said, “‘I was told that it was to create an environment where engineers from various departments can share notes when they eat.’ That was when the automotive world was moving toward simultaneous engineering in product development.”¹³ He quickly grasped the value of allowing for cross-pollination among creative types and hatched a dream to replace the humble shed with a new research facility that could duplicate the stimulating environments and creative encounters he observed at US research centers. The idea was to build a central facility that would gather M&M’s main automotive engineering force in one location—a fitting enabler for creative collaboration and serendipitous insights.

After beginning development in 2005, Mahindra Research Valley (MRV) finally opened in 2002 in Chennai, India. By 2015, MRV had 2,600 engineers across four domains: auto product development, farm product development, power train engineering, and advanced technologies. MRV is another instance of planned opportunism—building a platform of capabilities that allowed M&M to pursue new directions. The returns on this investment included a 20 percent faster pace of development from initial concept to product launch, the capacity to work on many more projects simultaneously, and more engineering development in-house, with less reliance on outside consultants. With the help of MRV’s engineers, M&M introduced successful new products, among them the XUV 500, the fastest-selling SUV at the high end, and the Arjun Novo, a market leader in the tractor industry. “Engineers at MRV are working on twenty new products/variants and three new tractor platforms apart from developing many new technologies ranging from in-car infotainment, alternate fuels, emission and safety standards and light weighting the car [making the car lighter] to improve fuel efficiency,” said Goenka.¹⁴

Besides MRV, M&M also opened a small technology center in Detroit (employing fewer than a hundred engineers) to absorb and leverage the experience of developed-world engineers, as well as a joint research center with SsangYong Motor Co. in South Korea. All three of these entities cooperate on numerous projects.

Clearly, both the Mahindra Group and Anand Mahindra have created enormous serendipitous value out of new conditions engendered by planned opportunism (see the sidebar, “Planning for the Unpredictable Future”).

Behavior 6: Investing in the “Horse You Can Control”

You’ll recall the metaphor in chapter 2 of attempting to balance on two horses, one that can be effectively controlled and the other one uncontrollable. The key is to know which is which. I first encountered this metaphor in Elizabeth Gilbert’s 2006 book Eat, Pray, Love, but it has long been an important theme in business, where every management move and strategy must be weighed against the constraints and contingencies that affect it. Almost nothing at which a business attempts to succeed is without various kinds of constraints.

It is easy, of course, to become preoccupied with the infuriating intractability of circumstances beyond your control: “Why must this uncooperative horse be harnessed to my obedient one?” But the work of balancing the three boxes must focus as much as possible on factors you can control. The best way to influence the horse you cannot control is to focus on the one you can.

Thus, for example, when Anand Mahindra realized he needed to do something about the fact that outside analysts and large investors undervalued his conglomerate, he did not first rush out to try to change their minds. Instead, he had to consider that they were not just being arbitrary or unfair, that there were causes for their skepticism that he might be able to do something about. So he looked in the mirror at his own performance and then across the company’s diverse divisions. He saw that he had failed to communicate a clear sense of purpose internally and, as a result, that the enterprise as a whole was neither coherent nor cohesive. He identified ways in which he could improve his performance in this area. Focusing on circumstances he could control, such as his own behavior, rather than those he could not—the behavior of analysts and investors—was the most effective way to begin changing the markets’ perception of M&M.

Because of its inherent riskiness and uncertainty, Box 3 is an area in which it is essential to focus on controllable factors. The horse you can control in Box 3 is the process of disciplined experimentation that methodically tests propositions in order to increase knowledge and certainty. Not only does new knowledge enhance the prospects for control by resolving uncertainty, it can also expose otherwise hidden and potentially unruly circumstances that must be factored into future experiments.

With Scorpio, for example, M&M’s shortage of new-vehicle engineering and design experience dictated the need to rely heavily on outside suppliers. Consequently, Scorpio’s experiments in sourcing strategy were a way to test the extremely counterintuitive idea that M&M could better manage the car’s development costs by extending to suppliers an unusually high level of trust and empowerment.¹⁶ That, by itself, was a nonlinear process innovation, one that, moreover, created a feedback loop of new understanding transferred from suppliers to M&M’s engineers.

Too often, an established mastery in executing a successful Box 1 business can feel like the pinnacle of control. You have developed and perfected the necessary internal skills and processes. You understand your customers and the market, having learned to anticipate and react to its rhythms, its ups and downs. And you have confidence, sometimes verging on arrogance, that you know what to do next. Soon enough, you are tempted to ride the obedient horse of Box 1 all the way through Box 2 and into Box 3 without stopping to consider what needs to be forgotten. You end up stuck in your comfort zone.

It’s possible that M&M’s most comfortable option for producing an original vehicle would have been to do it with Ford’s assistance. But even Ford’s chairman, Alex Trotman, understood this was a bad idea. It would have resulted in something that was neither new nor different, a vehicle “looking, smelling, and costing as much as a Ford.”

Ultimately, to get to its future, M&M needed to escape its comfort zone. Instead, it opted for the exhilarating, motivating discomfort of a high-stakes Box 3 risk. The appropriate focus of control in Box 3 is driven by ignorance rather than complacency. There is so much you don’t know yet about new customers, new technologies, new business models, and new types of risk. Consequently, you seek control through methodical investigation and discovery. Even within the adrenaline rush of its high-stakes gamble, the leaders of M&M’s sourcing strategy were notably flexible and patient with suppliers. They sought to collaborate rather than dominate because listening and collaborating are the best ways to learn. And Box 3 is almost exclusively about committing to the process of learning.

Conclusion: Roots, Chains, and a Culture of Balance

During the years over which these events played out, the Mahindra Group developed a new way of seeing itself and devised a branding strategy that encapsulated the company’s spirit in a single word: rise. Behind the word is a seventy-year-old story that connects the Mahindra Group founders’ aspirations and values circa 1945 with a modern recognition of the ways the world and the company have changed since then.

Remarkably, however, elements of the Mahindra Group’s original vision are preserved in today’s “rise” formulation: to be a company that lifts up people and communities, setting no limits on what they can accomplish.¹⁷

As I mentioned in chapter 1, for organizations and people, it’s helpful to think in terms of roots and chains. For a tree, roots sustain life. Cut the roots and the tree will die. Chains, on the other hand, create limits, constricting freedom of movement and threatening potential. Box 2 is where you must distinguish between roots and chains. Those critical distinctions ultimately reveal the aspects of your business that are timely and eventually perishable and those that are timeless and essential, and must be maintained. At the Mahindra Group, “rise” helped the company understand the differences between roots and chains.

“Rise” is a simple concept rooted in considerable thought and experience. Anand Mahindra used “rise” in guiding Box 2 decisions about the company’s diverse portfolio of businesses, commenting, “Rise will increasingly become part of the portfolio logic. That’s where a core purpose becomes extremely valuable. Rise businesses are those that allow you to do well and do good at the same time.” For example, the Mahindra Group has a housing-finance unit that in part is helping make decent housing affordable to the growing middle classes of emerging markets. It is also the company’s “fastest-growing business,” according to Mahindra. Other so-called rise businesses invest in solar energy and agribusinesses and extend access to health insurance to markets where that concept is still relatively new.

On the other hand, the company may one day face rise-related portfolio decisions about defense-related businesses. In that context, said Mahindra, “at the very least, we have decided we are never going to make anything … that could be seen as offensive weaponry. We’re never going to make explosive munitions.” The company is, however, developing blast-resistant armor for vehicles manufactured for the military.

So you see how balance can become uniquely nuanced from one organization to the next, encompassing divergent sets of values, some with ethical dimensions, such as we have seen in Willow Creek, URI, Keurig, and other examples. In every enterprise, there will always be a need to distinguish roots from chains. Even in a relatively young organization like URI, which grew quickly through an acquisition strategy, we saw operational values being invented on the fly under CEO Mike Kneeland, board chair Jenne Britell, and other executives. In the hard work of reengineering Box 1, they built a discipline around treating employees with respect by being transparent and communicating clearly and honestly, even in difficult circumstances. That discipline will likely become part of the URI root system. But other things will reveal themselves in time as chains, just as Willow Creek learned when it saw the need to change the basic nature and purpose of its conferences.

As a leader, Anand Mahindra seems always to have had an instinct for balance. Whether it comes naturally or is learned the hard way, responsibility for creating a culture of balance, as well as ensuring the daily operational fact of balance, rests mainly with the CEO. Properly executing this discipline is a bit like being a doctor making morning rounds: it requires combining the ability to focus intensely on one patient’s condition with an awareness that duty requires moving on to the next patient in a timely way. And just to extend the metaphor a bit further, because each patient is different, the doctor may need to adjust both style and method of treatment to achieve the best clinical outcome. The three boxes must be understood each on its own terms as well as in relation to the others.

This chapter and chapter 5 together provide a sort of narrative blueprint for balancing the three boxes. Creating the necessary culture requires combining structures, practices, and processes with the six essential leadership behaviors. Applied diligently and creatively, these ideas and different modes of approach will help you preserve the roots, break the chains, and build a sustainable future. This is the essence of the Three-Box Solution.