Two of the most loved companies in India Tata Sons and Flipkart announced their new leaders N Chandrasekaran and Kalyan Krishnamurthy respectively. Both the decisions were much talked about in multiple forums, especially the decision with Flipkart causing some worry in startup circles. If we look at both these decisions from an Organizational stage perspective, both the decisions seem apt.
Both these firms have decided to bring in a non-founder to steer the firms to the next stage and both these firms are at different stages of organizational evolution. They have decided their next leader as per their stage of organizational evolution.
The Tata Sons represent India for many of us and there would no one who doesn’t know the company (I have my own personal dream of working in one of the Tata firms before I retire to have that feeling of truly contributing to nation building). Being an extremely large conglomerate of firms from salt to software with complex cross holdings, managing the conglomerate is challenging. The Tatas have been managing this all these years within their family and close investors but this time their leadership decision ran into trouble and they had to get in a new leader. The Tata Sons are a mature conglomerate and running this cannot be done by an outsider or someone with less number of years with the firm. The Tatas have a legacy and a culture of their own and getting an outsider for the top job would mean a disaster. They cannot decide to bring in professional management like how Flipkart did because being in the system for long is key.
The Tata Sons are at a strategic inflection point where they need to rethink on their businesses in few sectors, focus on new sectors, handle legal issues they have been having and their expansion plans abroad. This needs a stronger and better connect to the system in Tata and a deep understanding of their businesses. The top job needs someone whom everyone can trust, someone who knows and connects well to the Tata legacy and someone who is part of the clan within the Tatas. N Chandrasekaran being a long timer with the Tatas and handling one of its largest businesses is easily the best man for the job. Being a close confidant of Tata and being in the system for long time helps in better and deeper understanding of the conglomerate aiding in better decision making as compared to a complete outsider.
Flipkart is undoubtedly the star of the startup ecosystem in India. Everyone loves the Flipkart story of evolution and continues to follow it with much interest. Flipkart has grown from a small startup, now into a “conglomerate of startups” like Jabong, Myntra etc. Flipkart has now reached a state where it needs to go beyond just outsmarting competition from Amazon and the likes to a stage where it needs to grow both organically and inorganically to stay in the game. In recent times, Flipkart has faced some serious trouble in terms of top level exits, funding crunch and devaluation by investors.
Flipkart is now in a stage where it needs to raise more funding to keep the ball rolling but its story is not very attractive to the investors now. Flipkart has reached a strategic inflection point where it needs to rethink its theory of business to keep growing as offering deep discounts can only bring them so far. The founders Sachin and Binny Bansal have got Flipkart to this point and this change in the strategic path needs new leadership – more professional and equipped.
Founders are generally more emotionally attached to their dream and might refrain from taking tough decisions regarding funding, acquisitions, downsizing and a whole lot of things which are needed to grow in size. This is one of the reasons most startups in the Silicon Valley change the leadership to more professional management after the startups reach a certain stage as founders are not very equipped to take decisions needed to take it to the next level and grow. So there is nothing new that Flipkart was doing but there is some tension as it is happening the first time in Indian startup space where founders were replaced at the top.
In the Flipkart group, Flipkart is truly the cash cow and the others are still growing and hence it is necessary to make it a strong firm to keep the entire group running. Flipkart needs to ready itself for public listing anytime soon to raise the additional funds it needs to grow, it might also give exit options to the existing investors. This calls for making the financials of Flipkart look strong and would need harsh decisions to improve margins and achieve a sustainable growth rate.
Flipkart’s growth will surely fuel the growth of other firms of the group by what is called as conglomerate discount in corporate strategy parlance. Once Flipkart seems strong and goes public, it will make it simpler to take the other group companies public as well or even take the entire group public. The additional funding will also help in making decisions regarding mergers and acquisitions of new firms into the Flipkart group. To reach this stage Kalyan Krishnamurthy suits best with his background in finance and online retailing.
A leader is meant to be the right fit to the organization at its current state and must be a person with the caliber required to the next desired state and both these firms have demonstrated how the stage of the organization decides the type of the leader it needs to move it to the next stage.